Sustainability Economics

Sustainability Economics
This book is a concise introduction to an emerging field within economics.

Drawing on numerous disciplines, including environmental science, environ-
mental and ecological economics and optimal growth theory, sustainability
remains a hazy and complex subject.
The author set out with two objectives: one, to bring some order into
the proliferating measures, models and management of sustainability; and
two, to facilitate access to a complex inter-disciplinary subject area. The
book points to practical ways of assessing and enhancing the long-term
environmental and economic sustainability of our economies.
The result is a fully international study that should bridge the gap
between disciplines and prove to be an essential guide to anyone interested
in one of the most important concepts in the social sciences.
Peter Bartelmus is a Professor at the University of Wuppertal, Germany.

He wrote the book as a Visiting Scholar at Columbia University, USA.
Routledge Textbooks in Environmental
and Agricultural Economics
1 The Economics of Agricultural Development, Second Edition

George W. Norton, Jeffrey Alwang and William A. Masters
2 Agricultural Marketing
James Vercammen
3 Forestry Economics
John E. Wagner
4 Agribusiness Management, Fourth Edition

Jay Akridge, Freddie Barnard, Frank Dooley and John Foltz
5 Sustainability Economics
An introduction
Peter Bartelmus
Sustainability Economics
An introduction
Peter Bartelmus
with illustrations by Arik Bartelmus
First published 2013
by Routledge
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Simultaneously published in the USA and Canada
by Routledge
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Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2013 Peter Bartelmus
The right of Peter Bartelmus to be identified as author of this work has
been asserted by him in accordance with sections 77 and 78 of the Copyright,
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without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Bartelmus, Peter.
Sustainability economics: an introduction/Peter Bartelmus.
p. cm.
1. Environmental economics. 2. Sustainable development.
3. Economic development–Environmental aspects. I. Title.
HC79.E5B368 2012
338.9’27–dc23
2011047099
ISBN: 978-0-415-68682-2 (hbk)

ISBN: 978-0-415-68683-9 (pbk)
ISBN: 978-0-203-11838-2 (ebk)
Typeset in Times New Roman

by Sunrise Setting Ltd
To Little Lea, who will inherit what we leave behind
Contents
List of figures ix
List of tables xi
Preface xiii
Acknowledgements xvii
1 Introduction 1
PART 1
Ecological sustainability: How much nature do
we need? 11
2 How much nature do we have? 13

3 How much nature do we need? Can we sustain
its use? 23
4 What should we do about it? 37
PART 2
Economic sustainability: How much for nature? 47
5 What is the value of nature? 49

6 Accounting for economic sustainability 61
8 Bridging the gap: ecological and environmental
economics 86
viii Contents
PART 3
Sustainable development: What else do we need? 95
9 A cure-all paradigm? 97
11 Some conclusions: What is countable?
What counts? What should we do about it? 119
References 125
Author index 139
Subject index 143
Appendix 149
A syllabus for a short course, including powerpoint

slides, can be accessed at the book’s web page at
www.routledge.com
Figures
1.1 Anthropocentric and eco-centric view of the

human environment 2
1.2 Economic exchange system 3
1.3 Environment–economy interaction 3
1.4 Finding the balance O5
1.5 Environmental-economic polarization 7
2.1 Global warming 16
2.2 Ecological Footprint 2007, major world regions 17
2.3 Material flow accounts of the European Union 19
2.4 Global energy balance 20
3.1 How bad is it? 24
3.2 Carrying capacity of people and their activities 25
3.3 Substitution 27
3.4 Economic growth and resource productivity in
Germany: an input–outout model 29
3.5 Limits-to-growth model, business-as-usual scenario 30
3.6 Ecological Footprint trend 31
4.1 Delinking natural resource use from economic
growth – a tunnel vision? 39
4.2 μηδέν ’άγαν, nothing in excess 41
4.3 Corporate social responsibility 42
4.4 Command and control 43
5.1 The value of nature 50
5.2 Environmental externality 51
5.3 How much for an elephant? 53
5.4 The total economic value 54
5.5 Discounting the damage of a nuclear meltdown 55
5.6 How much for nature? How much for economic output? 57
5.7 Economic values of an environmental service 59
6.1 GPI, GDP and personal consumption per capita,
USA, 1950–2004 62
x Figures
6.2 SEEA: incorporating natural capital in the
national accounts 64
6.3 Environmentally adjusted net Capital Formation (ECF)
in world regions 68
7.1 Environmental policy instruments 76
7.2 Optimal eco-tax 77
7.3 Environmental Kuznets curve (EKC), confirmed
and rejected 79
7.4 Economic discounting 80
7.5 Technology the saviour? 81
7.6 Rent capture and economic growth in Botswana
and Namibia 82
8.1 Bridging the gap? 87
8.2 Simplified structure of NAMEA 89
8.3 Hybrid input–output model 90
8.4 Linear programming of ecologically sustainable and
optimal economic activities 92
9.1 Sustainable development – in reductionist mode? 98
9.2 Least and most developed countries according to
the Human Development Index 2010 98
9.3 The four pillars of sustainable development 99
9.4 Harmony in the clouds – dissent on earth 101
9.5 Sustainable development ranking of selected countries 103
9.6 Globalization is not new 104
10.1 Think globally and act locally? 109
10.2 Eco-techniques 110
10.3 Priorities for sustainable development, the Netherlands 111
10.4 Agenda 21 112
10.5 Deglobalization 114
10.6 Global Compact 115
11.1 Sustainability categories 120
Appendix Historical perspective of eco-nomics 125
Tables
1.1 Schools of eco-nomic thought 6

2.1 Environmental indicators of selected countries 15
2.2 Ecological Footprint 2007, selected country rankings
and scores 17
3.1 Millennium Development Goal 7, ‘environmental
sustainability’: targets and indicators 32
3.2 Business as usual: how much nature do we need?
How much can we expect? 33
5.1 Environmental non-market effects of economic activity
and policy 51
5.2 Global cost of climate change 56
6.1 SEEA case study: Germany, 1990 67
7.1 Cost–benefit analysis of deforestation: El Nido,
Philippines 74
7.2 Marginal cost of climate change 78
8.1 Physical input–output table, Germany, 1990 88
11.1 Micro- and macro-concepts of sustainability 121
Preface
The apparent rationality of economics has lured scholars into applying

economic analysis to almost anything. Freakonomics, for instance, claims
to reveal ‘the hidden side of everything’ (Levitt and Dubner 2005). Beyond
some clever phrasing the practical results are often disappointing. So, why
another book on ‘sustainability economics’? Three reasons come to mind.
The first is the popular, but cornucopian paradigm of sustainable
development: it serves everyone and everything. To industry it offers
opportunities for environmental innovation, governments adopt it to pacify
environmentalist objections to economic growth, and civil society uses it
to argue against globalization. Vague objectives of meeting human needs,
increasing well-being or improving the quality of life make sustainable
development an alluring notion, for which no one can be held accountable.
Sustainability economics trims and quantifies these generic concepts with the
help of environmentally modified economic analysis and indicators.
The second reason is a distinct polarization of environmentalists and
economists, and more specifically, ecological and environmental economists.
Their dissent is about what should primarily be sustained. Ecological
economists argue that environmental conservation should get higher
priority than economic concerns in a world facing environmental disaster.
Environmental economists are more optimistic; they believe in the power
of markets and human ingenuity to sustain both the economy and the
environment. Sustainability economics reviews the different approaches and
reveals possibilities of reconciling or at least connecting the two sides.
The third and probably most important reason is that economics actually
applies sustainability in its concepts and models of economic growth.
Quite some time ago, Hicks (1939) defined income as ‘a guide for prudent
conduct’ so as to avoid a decline in consumption and well-being. National
accountants and modellers of economic growth translated non-decline of
income and consumption into maintaining the capital base of economic
activity. It is a small logical step to extend the notion of capital maintenance
xiv Preface
to the use of scarce environmental assets and their services. Economic
sustainability is a benchmark against which the prudence of individual
behaviour and economic and environmental policies can be tested. It would
be the backbone of a new discipline of ‘sustainability economics’.
More and more voices, however, especially from business, claim that there
is no reason for just sustaining good things like income and consumption
when you can have more of them. They also hold that established economic
analysis and policy are well equipped to incorporate environmental concerns
into efficiently maximized and distributed output, income and ultimately
welfare. Sustainability seems to be redundant from this point of view. At the
other end of the range of opinions, environmentalists question the relevance
of ‘puzzle-solving’ (Funtowicz and Ravetz 1991) economic models when
facing environmental catastrophe. The present book explores possible
common or middle ground in these arguments. It focuses on the measurable
and comparable, which is the environmental sustainability of economic
performance and growth. Narrowly defined sustainability of economic activity
stands a better chance of success than holistic visions of development.
The book draws some argumentative power from a previous publica-
tion on quantitative methods of environmental and ecological economics
(Bartelmus 2008). It goes beyond measurement, though, when exploring
the use and usefulness of sustainability concepts advanced by environ-
mentalists and environmental economists. It does not brush over dissent
and uncertainty. Rather, it reviews critically the pros and cons of their
approaches and attempts to build bridges across the two camps. Admittedly,
these bridges are not solid. Hopefully, they can still carry some dialogue on
how to combine the different efforts of attaining ecological and economic
sustainability.
All this sounds highly complex and difficult, and it is; but the sustainability
of our living standards in a safe and healthy environment affects us all. An
accessible, yet rigorous, introduction seems to be all the more necessary. I
have tried to provide a simple, non-technical narrative, supplemented by
annotated suggestions for further reading (the sections titled ‘Want to know
more?’). Obviously brevity and accessibility come at a price: it is the rather
subjective omission or relegation to further reading of topics that might
deserve better. Pointed questions at the end of each chapter raise some of
these topics, and invite review and discussion.
A concise introduction made easy should appeal to students of economics
and the life sciences, who want to look beyond the boundaries of their
established coursework. Hopefully it will also reach the governments and
civil society, who will once again meet in Rio de Janeiro – this time to
address the ‘greening’ of our economies. They would be well advised to see
what fact-based sustainability economics has to say about it.
Preface xv
Parts 1 and 2 of the book describe and compare the main approaches
to combining or at least connecting the measurement and analysis of
environment and economy. They do this from the points of view of ecological
and environmental economics and their sustainability concepts. Part 3
assesses the relevance of the all-encompassing philosophy of sustainable
development. In all cases we ask what should and could be sustained, and
what we should do about it. Conclusive remarks contend that sustainability
economics provides quantifiable benchmarks for prudent economic and
environmental behaviour and policy.
Peter Bartelmus
Davao, Philippines
August 2011
Acknowledgements
I wrote this book as a resident scholar at Columbia University; access to

its research facilities was invaluable, especially when commuting between
the Philippines and New York. My special thanks go to Professor Susan
Elmes of the economics department for her kind support of my work. Two
anonymous reviewers gave detailed comments and pointed out inconsisten-
cies and generics, of which I am quite critical, myself. It felt good to return
to Routledge, whose editors helped efficiently and managed to publish
the book in record time. As always, my former colleagues Alessandra
Alfieri, Eszter Horvath and Reena Shah of the United Nations Statistics
Division kept me up to date on new developments in environment statis-
tics and green accounting. Art and economics collaborated in a particularly
rewarding manner when my son Arik Bartelmus created the illustrations;
he also showed great patience with my repeated requests for additions and
amendments. I am grateful to all of the above.
Permissions to reproduce figures or charts are also gratefully acknowl-
edged. They include those by Stefan Bringezu; Elsevier; Eolss Publishers
Co. Ltd; the Intergovernmental Panel on Climate Change; Dennis Meadows;
Bernd Meyer; the Netherlands Environmental Assessment Agency; Springer
Science+Business Media B.V.; Taylor & Francis; VisLab/Wuppertal Institute
for Climate, Environment and Energy.
1 Introduction
What’s economics
got to do with it?
• Environment is all the living and non-living things around us

• Economy is the supply and use system of goods and services
• Environment and economy interact with good and bad effects for our
well-being
• Environmental economists rely on adjusting markets and technology to
maintain environmental services and economic growth
• Ecological economists call for curbs on or changes to economic growth,
which they see as the culprit of environmental decline
• Sustainability economics encompasses micro- and macro-concerns of
sustaining economic growth and development
‘It’ refers to the environment as a key concern of sustaining economic activity

and human health and well-being. This first chapter explores the interac-
tion of the environment and the economy as the cause of environmental
problems – problems that threaten the lasting supply of both environmental
services and economic products. Financial flows of credits and debts may
also sustain or undermine economic activity. Purely economic and financial
issues are, however, the subject of standard economic analysis and are not
further explored here.
Let us first find out what is behind the basic notions of ‘environment’
and ‘economy’. The nineteenth-century German biologist and philoso-
pher Ernst Haeckel (1866: 286) defined ecology as the ‘total science of
the relationships of the organism with its surrounding outer world’.
Replacing ‘organism’ by ‘human beings’ gives us a definition of the human
environment: it includes all of nature, other humans, and human-made
goods such as streets, buildings and computers. Different views about the
place of humans in their natural environment characterize two basic attitudes
2 Introduction
towards nature. ‘Deep’ environmentalists see people as a part of nature, on
a par with other living beings. In contrast to this eco-centric view, the more
popular anthropocentric view looks for nature’s benefits for humans: it sees
nature as a provider of services in support of human life and well-being.
Figure 1.1 illustrates the two worldviews that gave rise to different schools
of thought about human interaction with the natural environment.
Figure 1.2 is a simplified description of the exchange of goods and services
in markets. It gives a first impression of what the economy is. Households
provide work for enterprises, which remunerate labour with wages and
salaries. As consumers, households use their income to buy the goods
and services produced by enterprises, or they save part of their income for
future purchases. More detailed descriptions of economic activity include gov-
ernmental and non-governmental organizations and financial institutions. The
national accounts define these economic agents more rigorously and measure
their transactions in units of money. Economic theory attempts to explain and
predict the behaviour of economic agents and their effects on the economy.
So what is the problem? The problem is that environment and economy
interact, and not always in good ways. Nature sustains life on earth with
oxygen, food, water, energy and habitat. It also supplies the economy
with natural resources of timber, oil, metals, minerals, livestock and agri-
cultural products. Moreover, nature takes care not only of its own wastes,
(A) (B)
Figure 1.1 A
nthropocentric (A) and eco-centric (B) view of the human environment.
View A sees nature as the provider of natural resources and services of
recreation and waste disposal. View B rejects the dominance of humans
over nature and considers all living things as equal in their rights to life
and reproduction.
Introduction 3
Labour
Wages and salaries
Household expenditures
Goods and services
Figure 1.2 E
conomic exchange system. Enterprises produce goods and services.
Households work for enterprises and spend their income on purchases
of goods and services.
but also of wastes and pollutants from the economy. On the other hand,
natural disasters and overuse of nature’s services by humans take a toll on
human health and well-being. Figure 1.3 shows nature’s services as flows
of natural resources from the environment to the economy and back into the
Figure 1.3 E
nvironment–economy interaction. Source functions of supplying
natural resources and recreation, and sink functions of absorbing pollut-
ants and wastes are the main environmental services for the economy.
Environmentalists often treat the economy as a black box, whose inner
workings are largely irrelevant when facing environmental disaster (see
Chapter 2).
4 Introduction
environment as wastes and emissions. The uses and abuses of environmen-
tal services create good and bad effects for human well-being. Economists
call the good effects utility and the bad ones disutility or damage, when
they refer to individuals. For society or nations, they label the sum of these
effects as an increase or decrease of economic welfare.
Nature’s capacity for providing environmental services is limited.
Environmentalists hold that excessive economic and demographic growth
and associated technology destroyed much, if not most, of our natural
resources. They see the growth of the human population and its consumption
and production patterns as the main cause of environmental deterioration.
The rather tautological IPAT equation (Ehrlich and Holdren 1971) summa-
rizes this view:
GDP I
I = P × A × T = P × ____
  P × ____
 GDP = I
Here I is environmental impact, P is population size, A = GDP/P is affluence

and T = I/GDP is technological impact.
As discussed in Chapter 3, exponential population growth could bring
about a Malthusian decline in welfare. Population growth and concentra-
tion in urban areas also overburdens the planet with people’s wastes. A ‘full
world’, full of buildings, infrastructure and people and their wastes, is over-
loading the planet’s carrying capacity for humans and their artefacts (Daly
1996). Such a world is likely to collapse* unless we find ways of drastically
reducing the use of the natural environment. Mainstream economists doubt
that the end is near. They put their faith in human ingenuity and in the power
of markets to deal with increasingly scarce environmental services.
Whatever the outlook for our future, there is no question that there are
ultimate limits to the earth’s funds of natural resources and absorptive
sinks for our wastes. The recognition that these limits might undermine
economic growth and development is the basic premise for a new field
of study – sustainability economics. Environmentalists and economists
disagree, however, on when, if ever, we will hit these limits, what will be
the effects, and what we should do about it. This is what this book is about:
to find out if and how the natural environment can sustain economic activity
and welfare – now and in the future. Finding an efficient balance between
maintaining environmental services and generating income, wealth and
welfare is the main objective of sustainability economics (Figure 1.4).
* See the ‘Want to know more?’ section at the end of this chapter. Henceforth all asterisks in
the text should be taken to refer to those sections.
Introduction 5
Figure 1.4 F
inding the balance. Sustainability economics explores synergisms and
trade-offs between economic production and consumption and environ-
mental quality.
The emphasis is on efficiency, as it is mostly ignored in advocating sustain-

able development.
Distinct and often contradictory views about how to assess and tackle
environmental problems, and consequently sustainability, are at the origin
of different schools of environmental-economic thought. Table 1.1
summarizes (and simplifies) these schools under different categories of
‘eco-nomics’ (Bartelmus 2008). The four categories show increasing inten-
sity of intervention in the economy for the sake of environmental protection.
Conventional (neo-classical) economics seeks income and welfare maximiza-
tion without considering environmental constraints. Environmental economics
accounts for the scarcity of environmental services as an additional cost of
otherwise unrestricted economic activities. Ecological economists believe that
the dire situation of a full world calls for curbs on or at least radical changes to
economic activity; they favour rules and regulations over market instru-
ments to slow down or halt economic growth. Deep ecologists are least
concerned about economic scarcity and efficiency; adhering to the egalitarian
eco-centric view, they seek a symbiotic relationship with nature. In their view,
only a return to lower production, consumption and population levels can
save the earth.*
6 Introduction
Table 1.1 Schools of eco-nomic thought
Conventional Environmental Ecological Deep ecology

economics economics economics
- Maximization - Maximization - Reduced, zero or - Negative growth

of profit, utility/ of profit, utility/ radically altered of economy and
welfare and welfare and economic growth population
economic growth economic growth - Collective -R estoration of
- Unfettered - Market responsibility the environment
markets intervention by and policy for to attain
determine governments to nature: rules symbiosis of
production and make economic and regulations humans with
consumption agents pay for for the use of nature
of goods and environmental environmental
services damage services
Even the less radical environmental and ecological economists adopt dif-
ferent approaches. Figure 1.5 illustrates a distinct polarization in dealing
with environmental problems and the sustainability of the economy:
• environmental economists cost and budget environmental deterioration

(part A) for making economic activity environmentally accountable
and sustainable; and
• ecological economists warn us about the non-sustainability of current
economic activity, stemming from its physical ‘burden’ or pressure on
the environment (part B).
This book addresses the sustainability of economic performance and

development mostly at the national level, with some excursions into local
and global issues. However, micro-economic behaviour of households
and enterprises is very much part of the picture: this is the case when it
comes to explaining and influencing individual preferences for economic
and environmental goods and services. To address the interaction of
micro- and macro-planning and policy at local, national and international
levels a combined approach is chosen, rather than the standard split into
micro- and macro-economics. Note also that the crude distinction between
ecological and environmental economics serves didactic purposes. Related
schools of eco-nomics modify and sometimes combine the concepts and
methods of the two basic approaches.* The timeline in the Appendix
gives a historic overview of the key players responsible for combining
environmental and economic analysis. It shows, in particular, the merging of
thermodynamic physics and ecology in what became ecological economics,
Introduction 7
A. Environmental economics: how much for B. Ecological economics: how much

nature? nature do we need?
Figure 1.5 E
nvironmental-economic polarization. Part A illustrates the monetary
analysis of environmental economists; US$ 30 billion is a green account-
ing estimate of environmental cost in West Germany (see Chapter 6).
Part B indicates the physical assessment of environmental impacts by
material flow accounts; for industrialized countries the total material
burden of natural resource use amounts to about 80 tons per capita per
year (see Chapter 2).
Source: © VisLab/Wuppertal Institute for Climate, Environment and Energy, Thomas
Poessinger 2001, with permission from the copyright holder.
and the extension of mainstream economics into the use of environmental

services, the foundation of environmental economics.
The first two parts of the book explore the fundamental approaches of
ecological and environmental economics to sustainability definition, meas-
urement and policy. Part 1 asks how much of nature’s biophysical source and
sink functions is required to attain ecological sustainability. Part 2 explores
the economic and environmental costs and benefits of sustaining economic
performance and growth; the results are economic sustainability concepts.
Note that the frequently used term ‘environmental sustainability’ is generally
avoided. The reason is that both ecological and economic sustainability seek to
maintain the environment. Part 3 wonders what else we need and need
to sustain when tackling all-encompassing sustainable development. The
overall objective is to evaluate the use and usefulness of these concepts,
measures and methods for sustaining both the use of the environment and
the productivity of the economy.
8 Introduction
Want to know more?

In pre-industrial times Malthus (1798/1963) warned that unfettered
exponential population growth would meet with limited supply of food,
and populations would be reduced to subsistence level. Similar doom
emanated from the environmental movement, including predictions of
a ‘silent spring’ (Carson 1965) and the possible collapse of society and
economy by transgressions of the ‘limits to growth’ (Meadows et al. 1972,
1992, 2004) (see also Chapter 3). Sceptical voices are Nordhaus (1973),
Beckerman (1992) and Lomborg (2001). Critique and counter-critique
of Lomborg’s scepticism can be found at <www.lomborg-errors.dk> and
<www.lomborg.com> (accessed 18 June 2011). The famous Simon–
Ehrlich wager illustrates a rather playful debate between environmental
doomsayers and doomslayers (AAG Center for Global Geography
Education 2011). Hurricanes, floating ice bears and dried out riverbeds
evoke Al Gore’s ‘inconvenient truth’ about catastrophic effects of global
warming (Gore 2006). In a similar vein, Lovelock (2009) applies his Gaia
metaphor to climate change, warning that global warming could make the
earth uninhabitable in most places.
Textbooks of environmental economics describe the ‘internalization’
of neglected or ignored environmental costs into the budgets of enterprises
and households. The idea is to maintain profit and utility maximization
under ideal market conditions (see Chapter 7). Cost–benefit analysis is
also usually suggested for choosing among environmental protection
programmes (Chapter 7). Clear introductions are, among many others,
Turner et al. (1993) and Tietenberg (2005). The book by Hanley et al.
(2007) is a more advanced text for graduate students of economics.
Costanza et al. (1997a) gives a concise review of ecological eco-
nomics. A good read, albeit more advocatory in nature, is Daly (1996).
Herman Daly is one of the main protagonists of ecological economics.
His book is frequently used here for describing environmentalist rejec-
tion of mainstream and, to some extent, environmental economics.
Bartelmus (2008) compares both schools as part of a broader concept of
‘eco-nomics’. Lawn (2007) follows the tenets of Daly, introducing his
‘steady-state’ (no-growth) criteria into the analysis of macro-economic
equilibrium. Söderbaum (2008) equates sustainability economics with
sustainable development, from an ecological economics point of view.
Introduction 9
Other schools of eco-nomics. Focusing on the polarization of

ecological and environmental economics is a simplification. It reduces
a variety of approaches to two basic categories, leaning either towards
the preservation of nature at all cost, i.e. ignoring cost, or towards the
integration of environmental cost into economic accounting and analysis.
The Gaia hypothesis (Lovelock 1988/1995), which sees the earth
behaving like a living self-regulating organism, is one extreme of largely
ignoring economics. At the other end of the range, neo-liberal laissez-faire
economics ignores the environment. Among those in-between, we find
bio-economists (European Association for Bioeconomic Studies 1997),
who seek the symbiotic integration of humans into nature, and industrial
ecologists, who look for (natural-resource-saving) eco-efficiency in
enterprises (Ayres and Ayres 2002). Co-evolutionary economics (Norgaard
1994) applies the ecological concept of evolution to society, monitoring
the change of social values, knowledge, organization and the environment
(Chapter 9). Røpke (2005) describes the search of ecological economics
for identity versus mainstream economics and ecology. Atkinson et al.
(2007) take sustainable development as an umbrella for a collection of
articles on the sustainability of economic growth and development; they
deal with many issues raised in this book.
Points for discussion

• Is Christian faith – ‘fill the Earth and subdue it’ (Genesis 1: 28) – at the
roots of the anthropocentric view of the environment (cf. White 1967)?
• Do the losses of environmental services outweigh the benefits of
economic goods and services? Compare your answers to those of
Chapters 6 and 7.
• Are human well-being and welfare useful concepts for assessing
environmental damages and benefits? Check out the welfare and
happiness indicators in Chapter 6.
• What is your gut feeling (or vision): are we heading towards environ-
mental disaster? Revisit this question after each part of the book.
• Pricing the priceless or weighting by weight (Figure 1.4) is one symp-
tom of the polarization of environmental and ecological economists.
Do you think – as many environmentalists and economists do – that
this antagonism is overstated? See also the attempt at reconciling the
two camps in Chapter 8.
• Economics: part of the problem or part of the solution? See how the
book answers this question (Chapter 11).
Part 1
Ecological sustainability
How much nature do we need?
2 How much nature
do we have?
• Environmental indicators warn us about environmental degradation and

its welfare effects
• Global warming is an important environmental concern but not a
surrogate for overall degradation
• Material flow accounts measure potential pressures on the environment
• Energy accounts use the energy content of materials and products as
indicators of efficiency and potential environmental impact
• Material and energy flows cannot measure how much nature we have,
unless compared to the funds of natural resources
• The Ecological Footprint relates natural resource consumption to
source and sink capacities; controversial ‘area equivalents’ assess
biocapacities
• According to the Ecological Footprint, human use of the environment
exceeds the world’s biocapacity by 50 per cent
How much nature do we have? The answer of deep ecologists, like those
of the Gaia school, might be: we do not have any; rather, we are guests on
a planet, which we should leave untarnished to the next generation. Quite
a number of environmentalists and ecological economists subscribe to this
eco-centric view. To them, the real question is: what have we done to
nature? They see the real world as vandalized and on the edge of disaster:
• The world is in an ‘“overshoot-and-collapse” mode’ (Brown 2006: 5).

• ‘Our climate crisis… has become a true planetary emergency’ (Gore
2006: back cover).
• ‘For the first time in history, we face the risk of global decline’
(Diamond 2005: 23).
14 Ecological sustainability
Economic values and preferences do not count much in these cases and
may even impede saving the planet (Chapter 3). Figure 1.3 explained this
situation as living in a black-box economy that gobbles up nature’s goods
and spews out wastes and pollutants into the environment. The ‘core belief’
of ecological economists is that our economies have ‘already reached
or exceeded the maximum sustainable scale’ (Røpke 2005: 267). Much of
ecological economics is therefore about providing evidence for actual or
looming environmental disaster, and hence the non-sustainability of current
economic activity.
Environmental indicators measure the state and trend of the dif-
ferent environmental media of air, water and land.* They warn us about
environmental degradation and its effects on human health and well-being.
Topics include climate change, natural resource depletion, destructive land
use, pollution and natural disasters. To assess these broad areas one has
to determine ‘representative’ indicators. Any list of indicators is therefore
bound to be selective and judgemental. Also, the use of different units of
measurement makes it difficult to compare indicators and to combine them
in an index of overall environmental quality or sustainability. What are we
to make of the following indicators, typically advanced as evidence for
global environmental non-sustainability of economic and demographic
growth (Bartelmus 2008):
• 1.4 –5.8°C of global warming by the year 2100;

• a net loss of 7.3 hectares per year of forest cover;
• a loss of 68 species since 1970;
• degradation of 23 per cent of usable land area;
• overexploitation of 27 per cent of fish stocks;
• 40 per cent of the world population facing serious water shortage;
• 5–6 per cent of ozone layer decline in the mid-latitudes of the earth?
Looking at the underlying statistics reveals problems of data availability

and quality. Table 2.1 shows data gaps in a United Nations collection of
environmental indicators. The table also illustrates the difficulty of evalu-
ating the trend of environmental quality. What does the jumble of happy,
indifferent and sad face icons mean for the sustainability of economic activ-
ity and human welfare?
The simplest way to get the overall picture is to select an overriding con-
cern and a representative measure. For some time now, global warming
has been the embodiment of environmental deterioration. But should one
topic in the limelight overshadow other environmental and social concerns
such as deforestation, water shortage, pollution, nuclear energy risks, and
How much nature do we have? 15
Table 2.1 Environmental indicators of selected countriesa
Australia China Germany South USA

Africa
Water
Freshwater delivered per 592 56
capita (m3) (2004) — (2007) — —
Population connected to 87 46 96 60 71
wastewater collection (%) (2004) (2004) (2007) (2007) (1996)
Air pollution
SO2 emission per capita (kg) 125.3 — 6.0 — 33.3
Change in SO2 emission 67 –91 –51
since 1990 (%) (2008) — (2008) — (2008)
Climate change
Greenhouse gas (GHG) 26.1 3.4 11.7 9.4 22.2
emission per capita (t) (1994)
Change in GHG emission 31 –22 9 13
since 1990 (%) (2008) — (2008) (1994) (2008)
Waste
Municipal collection per 587 736
capita (kg) — — (2009) — (2005)
thereof: recycled (%) 30 47 24
(2003) — (2009) — (2005)
Hazardous waste (Mt) 14.3 22.3 34.8
— (2009) (2008) — (2005)
Land use
Change in forest area –3 32 3 0 3
1990–2010 (%)
Evaluationb
SO2 emission (since 1990)  —  — 
Water supply to total  —   
population (latest year)
GHG emission (since 1990)  —   
Hazardous waste (latest year)    — 
Forest area (since 1990)     
Source: United Nations Statistics Division (2010).

Notes:
a Updated in 2011; year of compilation in parentheses.
b According to colour codes in maps.
poverty (Figure 2.1)? Even if we accept average temperature increase as

the environmental measure, it is less clear how it will affect human well-
being, and where and when (Chapter 5). The most authoritative assessment
puts global warming by the end of the century at between 1.8°C and 4.0°C
(Intergovernmental Panel on Climate Change (IPCC 2007a). The same
report also gives ‘likely’ estimates of decreasing snow cover and sea ice,
2020–29 2090–99
©IPCC 2007: WG1-AR4

Pollution Pollution Pollution
Pollution Water shortage Water shortage
Desertification Desertification
Deforestation
Deforestation
Deforestation Poverty Deforestation Poverty
Water shortage
Ozone layer depletion Ozone layer depletion
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5
(°C)
Figure 2.1 G
lobal warming. Projected temperature increase in the twenty-first
century (comparing the third to the last decade). Global warming may
obscure other environmental and social concerns.
Source: Adapted from IPCC (2007a, Figure SPM.6).
increasing sea levels and tropical cyclones, and increasing and decreasing
precipitation in different parts of the planet. These are hardly accurate meas-
ures of the state of the environment or environmental sustainability, even
if one cannot deny the potential severity of global warming. A balanced
assessment should see climate change in the context of other environmen-
tal and socio-economic concerns. Comprehensive physical and monetary
indices and accounts claim to provide this context. This chapter discusses
briefly selected biophysical assessments; Chapter 6 presents the monetary
approaches.
The Ecological Footprint measures demand for, and hence pressure on,
bioproductive land and water from the use of renewable natural resources
and wastes. Demand is expressed as the ‘area required to produce all the
resources an individual, population, or activity consumes, and to absorb the
waste they generate’ (Ewing et al. 2010: 8). Further analysis compares the
Footprint to nature’s supply of ‘biocapacity’ or area available for resource
use and waste absorption. The result is a measure of ecological deficit, if
a nation exceeds nature’s capacity of providing environmental services,
or an ecological credit, if it keeps some unused capacity for potential
services. The implicit idea is to assess the sustainability of using environ-
mental services, taking limits in their availability into account. Calculations
for 2007 present an average of 1.8 ha of biocapacity available per person on
earth and an average footprint of 2.7 ha. The world thus faces an ecological
deficit of 50 per cent of its biocapacity. Figure 2.2 shows the footprints and
resulting ecological deficits or credits for major world regions.
10
0
WORLD Africa Asia Oceania LA & Car. Europe China USA
–2
–4
–6
Ecological Footprint per person (ha)

Ecological deficit/credit per person (ha)
Figure 2.2 E
cological Footprint 2007, major world regions. The world exceeded its
available biocapacity of 18 billion hectares (1.8 ha per person) by an eco-
logical deficit of over 6 billion ha (0.9 ha per person). The USA generated
one of the world’s highest footprints of 8 ha per person. Free biocapacity
in Oceania and Latin America exceeds the footprint of these regions.
Source: Ewing et al. (2010).
Table 2.2 presents selected national footprint scores and rankings. The
USA is second, surpassed only by the United Arab Emirates, with each
person using 8 ha of nature on an average. People in poor countries gener-
ate much lower footprints than rich ones. Obviously, the production and
Table 2.2 Ecological Footprint 2007, selected country rankings and scores
Country Rank Score Deficit/credit

(ha per capita) (ha per capita)
United Arab Emirates 152 10.7 –9.8

USA 148 8.0 –4.1
Sweden 140 5.9 3.9
United Kingdom 122 4.9 –3.6
Russia 113 4.4 1.3
Brazil 97 2.9 6.1
China 79 2.2 –1.2
Iraq 42 1.4 –1.1
Philippines 38 1.3 –0.7
Kenya 28 1.1 –0.5
Timor-Leste 1 0.4 0.8
Source: Ewing et al. (2010).

consumption levels and techniques of industrialized countries require more
natural resource inputs and generate correspondingly higher waste and
pollution. Depending on the available biocapacity, the level of foot-
prints does not necessarily correlate with the levels of ecological deficits
or credits. Sweden and the United Kingdom have similar footprints. But
different endowment with environmental services makes Sweden an
ecological creditor, whereas the UK’s footprint exceeds the use of the
country’s biocapacity.
The Ecological Footprint calculates national biocapacities by applying
a global area equivalent (per capita average) to a country’s population.
Responding to criticism that this ignores the possibility of importing
biocapacity from other countries, the latest Footprint version now
includes the footprints of imported and exported commodities. Other
improvements are an open discussion of calculation and interpretation
problems, notably the omission of non-renewable resources and wastes.
Most of these impacts are not related to biological capacities and could
thus be excluded from an ‘ecological’ measure. Still, one important issue
remains: the conversion of potential environmental impacts into area
equivalents. Such conversion into a common unit of measurement allows
different pressures to be summed into one footprint index. To this end,
‘equivalent factors’ estimate the bioproductive area required for food and
wood production, urbanization and the absorption of carbon from CO2
emissions. Hectares are poor measures, though, of widely differing resource
uses and pollutants, and of actual impacts of environmental depletion
and degradation.
Physical laws of conservation of energy and matter and their after-use
dispersal support more ‘balanced’ measurement. Material flow accounts
calculate the mass (in units of weight) of material inputs into the economy as
equal to the mass of materials staying in the economy or released as wastes
and pollutants.* Figure 2.3 shows the material flow account of the European
Union. The account records in principle all natural resource flows into the
economy of the EU, including those contained in imports, and their final
discharges as ‘residuals’ into the environment and non-EU countries.
The key measure of Total Material Input is also called Total Material
Requirement because it includes unused materials of earth and biomass
moved and disposed in construction, mining and agriculture. These ‘hidden
flows’ (Eurostat 2001: 15) are also part of the solid wastes of Total Material
Output. Water use is excluded because of its relative magnitude, which
would ‘drown out’ all other material flows. In industrialized countries,
Total Material Requirement appears to converge to an annual 80 tonnes per
capita. Japan’s 40 tonnes is an exception, reflecting its low energy con-
sumption (Bringezu 2002).
Natural environment
Exports 0.4
Imports 1.3 Economy
Solid
waste 5.5
Abiotic raw
materials 8.6
Air
emission 4.1
Biotic raw Water

materials 2.1 emission 3.7
Air 5.4 Erosion 1.1
Accumulation 3.7
Erosion 1.1
Total material Total material

input: 18.5 output: 14.8
Natural environment
Figure 2.3 M
aterial flow account of the European Union (EU-15, 1996). The total
mass of primary material inputs (18.5 billion tonnes (Gt)) equals the
mass of accumulation of materials in the economy (3.7 Gt) plus total
material outputs of wastes and emissions (14.8 Gt). Material flow
accounts still treat the economy as a black box (cf. Figure 1.3), except
for some accumulation of materials.
Source: Bringezu (2002), with permission from the copyright holder S. Bringezu.
Energy accounts could be an alternative to material flow accounts. This

would be the case if one could employ energy values as a common measur-
ing rod for material inputs into and residual outputs from economic activities.
Energy economists and accountants claim that economic products and their
environmental impacts of natural resource depletion and pollution can indeed
be valued by their energy content. They also believe that the availability of
useful energy (‘exergy’) is an indicator of sustainability, since all life on
earth depends ultimately on energy (Slesser 1975; Costanza 1980).*
At the planetary level, solar energy inflows and energy outflows can be
directly measured in watts or joules (Figures 2.4). Global energy balances
reveal the build-up of greenhouse gases that have caused global warming
since the beginning of the industrial revolution in the eighteenth century.
Measurement problems increase for tracing energy uses and their emis-
sions down to the different production and consumption processes. The
reason is the difficulty of obtaining reliable data on the exergy content of
OUTER SPACE
100
60 emitted 31 reflected 9 released
23 6 absorbed/
absorbed by trapped by GHG
vapour, clouds, dust
31 heat
46
ATMOSPHERE
Figure 2.4 G
lobal energy balance. All incoming solar energy (100 per cent) is
returned to outer space by emitting 60 per cent (of previously absorbed
radiation) from clouds and vapour, reflecting 31 per cent immediately
from the earth, and releasing 9 per cent from earth after absorption.
Another balance generates the equilibrium temperature on earth of about
27°C by absorbing 46 per cent of the incoming solar energy and releasing
it to outer space (9 per cent), into the atmosphere as heat (31 per cent), and
absorbing the remainder in clouds, vapour and greenhouse gases (GHG)
(6 per cent). The trapping of heat by GHG, in particular CO2 and methane,
is responsible for the greenhouse effect that keeps the earth’s temperature
at a comfortable level. Increasing GHG emission from human production
and consumption is responsible for pushing up the equilibrium tempera-
ture, causing global warming and its environmental impacts.
Source: US National Weather Service (2010).
energy carriers such as oil, gas or wood, and also of minerals, metals and
pollutants.
All in all, material flow accounts are more practical than footprint
calculations and energy accounts. They measure material inputs and outputs
directly by their weight and do not require estimates of the energy content
or area equivalent of natural resources and residuals. Ignoring, however, the
stocks of natural resources they cannot answer the question of how much
nature we have. Moreover, the weight of different flows of raw materials
(e.g. gold and timber) and pollutants does not measure natural resource
depletion and environmental degradation, nor can it reflect their significance
for humans and nature. Material input and output indicators show potential
pressure only on the environment. The question is how much pressure a
country or the planet can endure, i.e. at what level material inputs and out-
puts become non-sustainable. The next chapter will address this question.
Want to know more?

Combining different environmental impacts into one measure of overall
environmental quality or sustainability poses difficult aggregation
problems. Most governments and international organizations, therefore,
still use indicator sets. Conceptual frameworks define scope and coverage
and bring some order to long lists of environmental and sustainable
development indicators. Perhaps best known is the pressure-state-
response framework (United Nations 1984; OECD 1993) and its
derivatives (United Nations 1996; European Environment Agency, n.d.).
However, frameworks and even relatively short ‘core’ sets of indicators
(United Nations 2001; OECD 2003; European Environment Agency
2005) do not capture overall environmental quality and the sustainability
of economic activity. Emotional face icons (or colour codes) seek to
summarize indicator results (European Environment Agency 2002: 16,
2010: 18–19). Links to international targets such as the Millennium
Development Goals (Chapter 9) help, but are subjective and still a far cry
from an overall measure of environmental sustainability.
Material flow accounts were developed and applied in Europe
(Steurer 1992; Bringezu 1993; Eurostat 2001). They are grounded in
thermodynamic laws of energy conservation and dissipation, extended
to material flows (Georgescu-Roegen 1979). This extension assumes that
the use of matter follows laws of conservation and dispersal similar to
those of energy use. The Sustainable Europe Research Institute (SERI
2011) maintains a database of material flows in countries. The OECD
(2008) has now adopted material flow accounting, introducing it in
the international System of integrated Environmental and Economic
Accounts (Chapter 6).
Energy accounts assess the efficiency of energy use in production
and consumption. To this end, they defined exergy as the potential useful
energy available for doing work (Szargut 2005; Wall 2008). Several
articles in the Encyclopedia of Life Support Systems (Tolba 2001) discuss
exergy accounting for measuring the sustainability of energy use and
residual exergy in pollutants. More ambitious ‘emergy’ accounts measure
the total, directly and indirectly embodied, energy in products and energy
carriers for similar purposes (Odum 1996, 2002; Brown and Ulgiati
1999). The difficulty of comprehensive accounting for the energy value
of all material inputs and residuals prevented energy accounting from
becoming as popular as the easier-to-measure material flow accounts.

• How bad is it? Do environmental and sustainable development indica-
tors show the non-sustainability of our economies? Do they tell us what
sustainability is?
• Is climate change an ‘inconvenient truth’ of impending disaster or
a conveniently hyped-up exaggeration of potential environmental
hazards? See what Chapter 5 says about the costs of climate change.
• Can we take global warming as a proxy measure of environmental
degradation?
• What do the indices tell us? Is exceeding the world’s biocapacity a
measure of unsustainable demographic and economic growth? Or is
this the message of the input and output indicators of the material flow
accounts?
• What does the earth’s energy balance tell us?
• What are the uses of material flow and energy accounts? How do they
compare in measuring environmental impact?
• How much nature do we have? Can we know? Do we need to know?
3 How much nature
do we need?
Can we sustain its use?
• Some deep ecologists believe that nature’s own values of survival and
reproduction – rather than human bias – should determine the use of
environmental services
• Energy economists and accountants contend that nature invests energy
into anything, determining the value of any thing
• Ecological sustainability refers to the carrying capacity of people in a
territory and the resilience of ecosystems to human perturbations
• Strong sustainability requires the preservation of critical natural capital
• Differing results of modelling suggest that we do not know how much
nature we need
Chapter 2 examined indicators and physical accounts which claim to

measure the non-sustainability of economic activity. Perhaps surprisingly,
they did not come up with a clear red line or threshold which would sepa-
rate sustainability from non-sustainability. At first blush, the Ecological
Footprint looks like an exception, indicating exceedances of – unfortunately
rather murky – biocapacity levels. This chapter attempts to find out more
about the sustainability notions that do or should underlie the measurement
of sustainability. Asking how much pressure and impact we can endure
addresses the minimum requirement for sustaining our standards of living
and ultimately well-being.
Our need for nature’s services depends on (1) how much nature we will
have and (2) how much we value nature. The first question is a matter of
prediction, which depends on how much nature we had and have, as dis-
cussed in Chapter 2. The second question is a matter of evaluation, either by
individual preferences or by the norms and standards of experts, government
and non-governmental organizations (Figure 3.1). Both questions combine
Figure 3.1 How bad is it? Evaluating the trends of environmental impacts requires
modelling future trends and assessing their effects on the economy and
human welfare. Agreement on widely differing results and their inter-
pretation remains elusive.
in definitions and measures of the sustainability of human needs and

wants. Part 2 will explore how markets and market prices reveal individual
preferences for products and nature’s services. Here, we look into more
judgemental evaluations by those who are ‘in the know’.
Most ecological economists reject the ‘commodification’ and pricing of
nature. Their vision of (non-)sustainability sees the economy as an expand-
ing component or ‘subsystem’ of a ‘finite and non-growing ecosystem’ (Daly
1996: 27). As we saw in the preceding chapters, in their view, the economic
expansion has now reached the limits of the global ecosystem, threatening
all life on earth. In this case, nature’s own values of survival and reproduc-
tion, rather than ‘human bias’ towards maximizing utility, should rule the
use of nature (Brown and Ulgiati 1999). Energy economists and account-
ants contend that energy flows can assess both nature’s and the economy’s
values since energy is a requirement for all processes and activities on earth
(Chapter 2). Nature invests energy into anything, determining the value of
any thing. Problems of converting matter and different energy sources into a
common energy unit and the rejection of human preferences prevented wide
acceptance and application of energy valuation and accounting.
How much nature do we need? 25
More pragmatic ecological economists let humans back into the picture
by exploring how many people a territory (ecosystem, country, the planet)
can sustain. This provides us with an ecological sustainability concept
in the form of a region’s carrying capacity (Figure 3.2). On the one hand,
carrying capacity depends on the provision of ecosystem services. Besides
environmental source and sink functions, these services include life sup-
port and recreation, as well as aesthetic and cultural values of nature. On
the other hand, carrying capacity also depends on people’s needs and wants
that are usually expressed as their standards of living. Human efforts to meet
desirable standards of living have been the cause of overuse and abuse of
ecosystem services. Ecological economists often equate, therefore, ecological
sustainability with ecosystem resilience to human disturbances of ecosystem
equilibrium (Perrings 1995, 2006). Safe minimum standards are to keep the
use of ecosystem services within the boundaries of resilience (Chapter 4).
The two definitions of ecological sustainability reflect different views
of what should be sustained. Is it the health or quality of the natural
environment, free of biased human preferences, or is it the health and
quality of life of humans? Or is it both, with an implicit but fuzzy reasoning
of ‘what’s good for nature is also good for humans’? Ecological economists
seem to follow the last argument when proclaiming the need for preserving
Figure 3.2 C
arrying capacity of people and their activities. The ecological sustain-
ability of a region is the number of people the region’s ecosystems can
sustain at a minimum standard of living.
critical natural capital. Criticality of capital refers indeed to both the
maintenance of environmental quality and the sustainability of economic
production and consumption. Critical natural capital is seen as vulnerable
and irreplaceable, and its depletion as irreversible.*
The meaning of irreversibility blurs, however, in the light of counteracting
actions and processes that are themselves difficult to pin down, including:
• natural renewal of regrowing biological resources and replenishment

of circulating ones like groundwater;
• restoration by investing in the repair or renewal of natural capital;
• substitution of non-renewable and non-restorable natural resources
such as minerals or fossil fuels by renewable or reproducible ones;
• discovery of natural resource stocks such as oil or gas deposits.
The distinction of renewable and non-renewable resources is ambiguous,

since prolonged overuse of renewables – beyond their maximum sustain-
able yield* – makes them exhaustible. Uncontrolled access to renewable
resources such as fish in the ocean or timber and species in the wilderness
has given rise to the ‘tragedy of the commons’: ignorance about sustainable
use brought about resource depletion and loss of livelihood.* Moreover,
restoration efforts tend to become impractical and may well be aban-
doned when facing prohibitive costs of rebuilding complex ecosystems
(Coastal Service Center, NOAA n.d.). Substitution may be possible for
particular uses of a natural resource like water for swimming; it could
fail if other features, for example of an unspoilt seaside, are taken into
account (Figure 3.3). It is an open question whether technological progress
(Chapter 7) can find a way around using irreplaceable resources. Discovery
and improved mining techniques have extended the lifetime of exhaustible
resources, much to the surprise of both economists and environmentalists.
Still, ecological economists call for the full preservation of critical
natural capital as a strong sustainability objective. Advocates of strong
sustainability tend to play down the roles of renewability, discovery,
restoration and substitution – in a world that is unwilling to refrain from
overconsumption of natural resources or unable to invest significantly
in their restoration. They also point out that substitution of irreplaceable
critical natural capital is not possible by definition, at least with current
knowledge and technology (Costanza et al. 1991; Daly 1996). In contrast,
environmental economists focus on the income-spinning capacity of capital
and its potential for generating economic welfare. This capacity permits
placing a monetary value on any type of capital, whether natural or pro-
duced. Maintaining this value, rather than preserving a particular amount
of critical natural capital, is the objective of a weak sustainability concept
Figure 3.3 S
ubstitution. Can we replace polluted beaches with clean swimming
pools?
(Chapter 6). The strength of sustainability is a distinctive and distinguishing

feature of ecological and environmental economics.
The indicators of the material flow accounts cater to relatively strong
sustainability; they allow substitution only among different primary raw
materials, ignoring possible substitution by other production factors. Material
flow indicators do not, however, show how much nature we have and how
much of it we have used sustainably or unsustainably. The reason is that the
accounts fail to identify the use of critical natural resources and to link the
flows of natural resources to resource stocks (Chapter 2). The question then
remains: by how much do we have to reduce the inflow of materials from
the environment to attain sustainability? The answer is left to the judge-
ment of experts. Perhaps best known is the Factor 4 rule of halving material
input while allowing economic output (GDP) to double over the next 20–30
years. Innovative resource-saving technology supposedly obtains a four-
fold increase in natural resource productivity, i.e. GDP per unit of material
input (von Weizsäcker et al. 1997). There is little justification for setting the
Factor 4 standard, except for the ‘belief’ that it ‘can put the Earth back into
balance’ (von Weizsäcker et al. 1997: xv).
An input–output model attempted to assess the material requirements
of the German economy (Meyer 2005). Figure 3.4 indicates some improve-
ment in resource productivity. However, the model shows also that business
as usual will not attain the German government’s Factor 2.5 target, let alone
Factor 4. At the same time, the figure reveals the limitations of looking
into the future: the 2008–9 global economic downturn obviously derailed
the predictions of continuing GDP growth and corresponding material
requirements.
Modelling problems multiply at the global level and by looking further
ahead to the end of the century. The popular Limits to Growth report has
therefore met with strong criticism. Its complex simulations predict social
collapse if current demographic and economic trends continue.* The
report addresses both prediction of environmental impact and evaluation
in terms of human welfare. An approximation of the Ecological Footprint
represents environmental impact. The Human Development Index (UNDP
2010) supposedly measures welfare as an average of literacy, gross national
income per capita and life expectancy.
Figure 3.5 shows the business-as-usual scenario for both indices. Natural
resource depletion triggers the downturn of economic output, including food
and health services that cause the decline of human welfare. By the end of
the century, society’s collapse would take the shape of a return to year-
1900 standards of living. Non-sustainability in terms of declining welfare
could begin in the near future, just before the turning point of environmental
impact, brought about by negative demographic and economic growth. The
authors hasten to explain that the business-as-usual scenario is not necessar-
ily the most likely outcome since it reflects past behaviour. Individual and
governmental reactions to looming disaster might change the outcome as
shown in other scenarios. Still, critical voices doubt the validity of the data-
poor model and question the underlying exponential growth assumptions.*
300
Resource productivity (%) 250
200
150
100
50
0
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
Year
A
Baseline Target
4
3
2
1
Real GDP growth
0 World Bank
–1 Input–output model
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
06
20 7
20 8
09
9
9
9
0
0
0
0
0
0
0
0
19
20
–2
–3
–4
–5
–6
Year B
Figure 3.4 E
conomic growth and resource productivity in Germany: an input–
output model. Part A shows that resource productivity (GDP per Total
Material Requirement) will increase in the baseline (business-as-usual)
scenario of the input–output model from an index level of 100 in the
early 1990s to 130 in 2020. This increase by a factor of 1.3 is a far
cry from the governmental Factor 2.5 target. Part B illustrates the prob-
lems of prediction, comparing the results of actual with modelled GDP
growth: note the effect of the 2008–09 recession.
Sources: Input–output model: Meyer (2005), with permission from the copyright holder
B. Meyer; World Bank, actual data: World Bank (2011).
Human Welfare and Footprint
Human Welfare index
Human ecological footprint
1900 2000 2100
Figure 3.5 L
imits-to-growth model, business-as-usual scenario. Human welfare and
environmental impact (Ecological Footprint) increase up to a turning
point in the first half of the twenty-first century. By the year 2100 human
welfare might reach a year-1900 level, with environmental impacts at
the level of the 1970s.
Source: Meadows et al. (2004: 169, scenario 1), with permission from the copyright holder
D. Meadows.
The Ecological Footprint aims to show the average per-capita territorial

use of the environment (Chapter 2). One could therefore see the Footprint
as an inverse measure of carrying capacity. Currently, the Footprint calcula-
tions are the only attempt to recurrently measure ecological sustainability at
different regional (local, national and global) levels. Future sustainability
has to be predicted. Figure 3.6 presents trend extrapolations of the global
footprint. According to World Wide Fund for Nature et al. (2010), the trend
is based on international projections of population, land use, land produc-
tivity, energy use, diet and climate change. If business as usual continues,
we will overshoot the available biocapacity by 100 per cent in the 2030s. In
other words, we will need another planet to meet the needs of our current
lifestyles. By 2050, the business-as-usual scenario shows the need for two
more planets.
As we are unlikely to colonize other planets anytime soon, it looks like
we have to reduce our consumption of nature’s services to the available
18 billion hectares of biocapacity (Chapter 2). Yet, we have been overshoot-
ing this capacity since the 1980s without causing a major planetary disaster.
Can we expect to do so in the future? Or will nature and society collapse?
When? World Wide Fund for Nature et al. (2010: 86) state laconically that
Number of
additional planets
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1960 1980 2000 2020 2040 2060 2080 2100
Figure 3.6 E
cological Footprint trend. With business as usual and continuing popu-
lation growth, we might need two planets in the 2030s and three planets
in the 2070s to maintain our lifestyles.
Source: Until 2050: World Wide Fund for Nature et al. (2010); three-planet projection: own
linear extrapolation.
‘our present track is unsustainable’, but changing the assumptions about

energy use and diet would make the ‘development of the world’ more
sustainable.
Assumptive and data-poor modelling of the far-away future may be the
reason for more definite but also more judgemental statements about how
much nature we should use. Table 3.1 presents indicators for the differ-
ent targets of the ‘environmental sustainability’ goal of the United Nations
Millennium Development Goals (Chapter 9). With the exception of ozone
depletion, the prospects for reaching the targets within the prescribed time
frames do not look good. The political selection of targets and the difficulty
of finding and comparing appropriate indicators make this a questionable
assessment of global sustainability.
Table 3.1 M
illennium Development Goal 7, ‘environmental sustainability’: targets
and indicatorsa
Environmental sustainability
Target 7A: Reverse the loss of environmental resources

2000 2006–10
Forest cover (% of land area) 31.4 31.0b
CO2 emission (billion tons) 24.0 30.0c
Ozone depleting substances (million tons)
Consumption of developing regions 212.5 44.7d
Consumption of developed regions 24.1 –1.8de
Fish stocks (% within safe biological limits) 72 72f
Water resources used (% of renewable water)g
Developing regions 6.7
Developed regions 9.3
Target 7B: Reduce significantly biodiversity loss by 2010
1994/96 2008
Species not expected to go extinct in the near future 85.3
(% of total number of species)
Birds 93.5h 93.1
Mammals 86.0i 85.3
Target 7C: Halve by 2015 the proportion of people
without sustainable access to safe drinking water
and basic sanitation
1990 2008
Population using improved drinking water services 77 87
(% of total population)
Population using an improved sanitation facility 54 61
(% of total population)
Target 7D: By 2020, to have achieved a significant
improvement in the lives of at least 100 million
slum dwellers
2000 2010
Urban population of developing countries living in 39.3 32.7
slums (million)
Source: United Nations (2010b).

Notes:
a Unless otherwise stated: world figures.
b Year 2010.
c Year 2007.
d Year 2008.
e Exports plus destruction exceed consumption (production plus imports).
f Year 2006.
g Around year 2000.
h Year 1994.
i Year 1996.
Chapter 2 revealed the problems of using environmental impacts of
the past as indicators of potential non-sustainability. This chapter defined
ecological sustainability more succinctly by extending the sustainability
analysis into the future. Table 3.2 illustrates with a few examples the large
variety of different sustainability models and their assumptions. One type
of assumption is the particular set of environmental targets or limits chosen
for economic activity. As discussed, standards, targets or rules for limiting
the use of environmental services are crucial to the definition and assess-
ment of ecological sustainability. Unfortunately, there is no consensus on
Table 3.2 B
usiness as usual: how much nature do we need? How much
can we expect?
Measure/model Results Limits/targets Assumptions

_1
Ecological Footprint Now: 1 2 planets Biocapacity of Area equivalents
2030s: 2 planets regions and the for the use of
2070s: 3 planets globe natural
resources
Linear
extrapolation of
Ecological
Footprint trend
Limits to Ecological 2020s: maximum Availability of Exponential
growth Footprint footprint natural demographic
model 2100: footprint at resource stocks and economic
1970s level Carrying growth
Welfare Now: declining capacities Powerless
Index welfare technology and
2100: welfare at markets
1900 level
Total material 2100: Factor 1.3 Factor 2.5: Cost-pushed price
requirement of 1992 government setting and
(input–output model, resource target technological
Germany) productivity Factor 4: non- change
governmental Stable economic
target growth after
2005
Millennium As of 2008 United Nations Politically
Development Goal: Target for ozone targets and time negotiated
‘environmental depletion schedules for targets
sustainability’ reached environmental represent the
Meeting other sustainability collective will
targets: unlikely of nations
environmental limits, whether assessed at local, national or global levels.
The question is indeed whether politically negotiated or ‘expertly’ set tar-
gets and standards reflect collective will or the agendas of politicians and
the environmental lobby.
Hardly comparable results come as no surprise. By the end of this
century:
• we might need a couple of planets;

• human welfare could be at the level of a century ago, although with
drastically reduced environmental impacts;
• a dematerialized world economy is unlikely;
• most of the Millennium Development Goals of the United Nations
might be as unattainable as those of the preceding Development
Decades (Chapter 9).
We might not know how much nature we need to gain ecological sustain-
ability, but ignorance is neither bliss nor a release from responsibility. So
what should we do about it? This is the question for the next chapter.
Want to know more?

Ecosystems and ecosystem services play a central role in ecological
economics. The interaction of living organisms with their non-living
environment characterizes ecosystems. Ecosystems seek to maintain
a relatively stable equilibrium for their populations and their metabo-
lism (e.g. Odum 1971). Human skill and technology have the power to
overcome the resilience of ecosystems to disturbances of their equilib-
rium. A big disturbance or shock can lead to a new acceptable equilibrium,
or an unacceptable one that might drastically impair the welfare of human
populations (Brand 2009). The Millennium Ecosystem Assessment
(2005: v) defines ecosystem services as ‘benefits people obtain from
ecosystems’. Such definition opens the door to a myriad of nature’s goods
and services which humans could and do use, or might just cherish, such
as popular species.
Ecological economists define critical natural capital as those parts
of the natural environment that perform important and irreplaceable
ecological functions (de Groot et al. 2003). These functions contribute
significantly to welfare and are deemed essential for attaining ecological
sustainability (Ekins et al. 2003). Sustainability standards and indicators

make the generic criteria of criticality (importance and vulnerability/
resilience of natural capital) more operational (de Groot et al. 2003;
Brand 2009). A special issue of Ecological Economics (44, 2003)
describes the outcomes of a European research project on critical natural
capital and strong sustainability. Vague definitions of natural capital and
its criticality make the concept little more than a reminder of threats to
ecological sustainability.
Natural growth of a population in an ecosystem such as fish in a well-
defined fishing ground typically follows a logistic curve. The population
grows rapidly at low stock levels as it has ample resources and space. At
some higher level, food scarcity and habitat limitations slow down the
growth rate up to a point where it begins to decrease. The turning point
of the maximum growth rate also marks the maximum sustainable yield
or surplus that can be continuously harvested without a decrease in the
(fish) population. Any higher and prolonged harvesting rate will lead to a
decline and ultimate depletion of the resource. Eventually the ecological
constraints of the ecosystem will halt the natural growth of the population
at the system’s carrying capacity. A vivid description of the sustainable
yield model and its limitations can be found in Paterson (2008).
Profit-seeking fishing fleets often exploited renewable resources
beyond sustainability levels. The reasons were ignorance or disregard of
the risk of triggering depletion, even before reaching maximum sustainable
yield. This unintended decline of a natural resource has become known as
the tragedy of the commons (Hardin 1968). To some extent ‘commons’
is a misnomer since most traditional communities have managed their
common property resources sustainably. ‘Open-access resource’ is a
better term for renewable resources at risk of depletion in situations of
uncontrolled exploitation (Turner et al. 1993). Fish in the oceans, timber
in tropical forests and sinks for pollutants in the atmosphere are resources
where governments or other economic agents did not have or did not
claim ownership and exploitation rights.
The first Limits to Growth report created a heated debate with its
Malthusian prediction that ‘the limits to growth on this planet will be
reached sometime within the next 100 years. The most probable result
will be a rather sudden and uncontrollable decline in both population
and industrial capacity’ (Meadows et al. 1972: 29). The latest report
(Meadows et al. 2004) confirms this prediction. The authors present,

however, alternative scenarios with progressively positive results. In
the most optimistic scenario, natural resource savings, environmental
protection and zero demographic and economic growth create, in 2100, a
slight increase in human welfare with a stable and sustainable ecological
footprint. Critique refers to (1) assumptions of exponential demographic
and economic growth and corresponding environmental impacts, (2)
insufficient data, and (3) ignoring market forces, technological progress
and changes in social values (Cole et al. 1973; Nordhaus 1973; Beckerman
1992). The Limits to Growth authors defended their approach in Cole
et al. (1973).

• Does carrying capacity, the measure of ecological sustainability, reflect
our preferences for environmental and economic goods and services?
• Should nature’s values – what are they? – override human values?
• What does ecological sustainability sustain: nature, welfare, the
economy?
• Do the predictions of exceeding the biocapacity of earth and of the
limits to economic growth confirm your ‘gut feelings’ (cf. Chapter 1)
about pending disaster? Do linear trend extrapolations predict future
ecological footprints?
• Are ‘expertocratic’ or political goals and targets, such as the Millennium
Development Goals or dematerialization factors, valid indicators of
how much nature should be available for sustainable use?
• How do we know that some assets and amenities of nature are in
critical condition? Critical for what? How critical?
• What is the difference between common-property and open-access
resources?
• Is technology the saviour (cf. Chapter 7)? How realistic is the Factor
4 suggestion that halving material inputs will make economic growth
sustainable?
• How much nature do we need? Can we know? Do we need to know?
4 What should we do
about it?
• Environmental management rules are principles of the sustainable use

of environmental services; adaptive management deals with uncertainty
in managing ecosystems
• Measures and models of non-sustainability provide differing and often
contradictory policy advice
• Sufficiency in consumption and eco-efficiency in production are micro-
economic strategies of ecological sustainability
• Corporate social responsibility caters to demands of stakeholders
• Standards, rules and regulations are the preferred policy tools of
ecological economics
• Delinking environmental impacts from economic growth is the macro-
economic strategy of ecological sustainability
• Ecological economics needs a framework for integrative economic-
environmental analysis and policy
Not knowing how much nature we need is not a good start for formulating
sustainability policies. Ecological management rules or principles are a
first response to perceived non-sustainability (Daly 1990; Sachs et al. 1998;
Lawn 2007). The rules call for:
• the use of renewable resources within their regenerative capacity;

• the use of non-renewable resources as far as their consumption is offset
by investing in renewable substitutes;
• the discharge of wastes and residuals without exceeding the absorptive
capacities of natural sinks;
• the preservation or restoration of critical natural capital.
The rules refer to the mitigating actions and processes discussed in
Chapter 3. Their application faces uncertainty and disagreement about the
availability and use of natural resources and ecological services. To what
extent should one preserve natural resources, even critical ones, for which
future generations might have little use? Are temporary exceedances of
source and sink capacities justified if it allows basic needs in poor countries
to be met? According to the precautionary principle of the Rio Summit, the
‘lack of full scientific certainty’ in these cases is not ‘a reason for postpon-
ing cost-effective measures to prevent environmental degradation’ (United
Nations 1993: Principle 15) – simply stated: better safe than sorry!
One response to this admonition is the setting of safe minimum stand-
ards that could avert serious degradation within the bounds of ecosystem
resilience.* However, the large variety of ecosystems and their services make
it difficult to apply common standards to large territories such as countries
or the planet. In practice, ecological sustainability has therefore mostly been
applied to the management of particular ecosystems and local agricultural
areas. The objective of iterative adaptive management (Holling 1978) is
to deal with uncertainty in ecosystem use, conservation and restoration. The
idea is ‘learning by doing and adapting to what is learned’ (US Department
of the Interior 2010).
For national or international policy, we can examine the policy recommen-
dations raised in connection with the measures and models of Chapter 3. In
line with the definition of ecological sustainability, they refer to nature’s lim-
ited carrying capacities or potential pressures on these capacities (Table 3.2).
The authors of the limits-to-growth model provide generic advice:
‘Visioning, networking, truth-telling, learning and loving’ is to bring about
a ‘sustainability revolution’ (Meadows et al. 2004: 269). The model’s pro-
gressively optimistic – but also ‘less likely’ – scenarios indicate how vision
should be translated into action. Population control, changes in lifestyle,
and resource-saving and pollution-reducing technology would enable us to
live within the planet’s environmental limits. The question is, of course,
if and how these general recommendations translate into concrete policy-
making.
Combining the findings of a biodiversity index, the Living Planet Index,
with the Ecological Footprint, the Living Planet Report (World Wide Fund
for Nature et al. 2010: Chapter 3) gives a number of recommendations for
a ‘green economy’. The recommendations are more detailed than the above
management rules, including:
• supplementing the report’s indices with other indicators that could do

what GDP cannot do, which is to measure well-being;
• investment in natural capital;
Tackling ecological sustainability 39
• protection of ‘biomes’ of forests, freshwater and oceans, setting aside
at least 15 per cent of space to this end;
• equitable distribution of energy, food and other natural resources by
allocating ‘national budgets’ for key resources;
• fostering local governance, international action and public–private
cooperation.
If this sounds like the agenda of a United Nations conference, it is: the
intention is to make the issues raised in the report the ‘centrepiece’ of the
forthcoming Rio+20 summit (Chapter 10).
Rich-country organizations argued for dematerialization by delinking (or
decoupling) pollution and natural resource use from economic growth
(Organisation for Economic Co-operation and Development (OECD) 2002;
Commission of the European Communities 2005; see Figure 4.1). Not to be
left behind, the United Nations Environment Programme (UNEP 2011a: 30)
has now joined the decoupling calls, suggesting a ‘tough’ reduction of
annual resource use in industrialized countries by a ‘factor of 3 to 5’.
Recommendations of changing lifestyles and fostering environmentally
sound technology aim to achieve at least a relative delinking, where material
inputs still increase, but at a lower rate than that of economic growth.
Figure 4.1 D
elinking natural resource use from economic growth – a tunnel vision?
Is halving material flows into the economy compatible with doubling
economic wealth? Will there be sustainability at the end of the tunnel?
Sustainability of what: the environment, the economy or society?
The question is: how much dematerialization should we encourage or enforce,
and over what period of time? Is it Daly’s (1996, 2005) constant sustainable
‘throughput’ (material flow through the economy), or the reduction of material
flows by a factor of 2 or even 10 (Factor 10 Club 1994)? Will sustainability of
economic growth or ‘development’ (Chapter 9) be the result?
The European Union’s natural resource strategy recognizes that lack of
knowledge and data precludes setting quantitative targets (Commission
of the European Communities 2005). Its strategy of relative decoupling is
an indication that member states are not willing to abandon or slow down
economic growth (cf. Chapter 10). Similarly, the OECD (2002: 5) admits that
its ‘decoupling concept lacks an automatic link to the environment’s capac-
ity to sustain, absorb or resist pressures of various kinds’. Consequently the
strategy resorts to conventional environmental policy of monitoring compli-
ance with international targets and recommending follow-up action. Even
former followers now see the Factor 4 increase in resource productivity more
as a ‘directional guide’ than a concrete policy prescription (Hinterberger
et al. 2000; Bringezu 2002).
Suggestions for tackling ecological limits abound. To bring some order
into proliferating sustainability targets and policy recommendations one
can distinguish four basic strategies (Bartelmus 2008); they reflect differ-
ent attitudes towards environmental limits in production and consumption:
• ignoring the limits and letting markets evaluate and deal with scarce
environmental services;
• embracing limits, showing sufficiency in consumption and corporate
social (and environmental) responsibility in production;
• pushing the limits for production through eco-efficiency;
• enforcing limits by rules and regulations for producers and consumers.
Mainstream economists tend to ignore environmental impacts as external to

their models of supply and demand and economic growth. Environmental
economists still prefer the invisible hand of the market to the rough elbow
of regulation: budgeting for environmental costs allows market negotiation
to determine the efficient use of environmental services (Chapters 5 and 7).
Ecological economists may not shun market incentives and disincentives if
they help changing lifestyles and production patterns. But they consider the
marginal costing and pricing of such incentives as at best a supplementary
tool. At worst, they see it as little more than ‘puzzle solving’ (Funtowicz and
Ravetz 1991). Marginal adjustments of market behaviour cannot, in their
view, deal with the severity of environmental effects on nature and people.
What we need is a profound change of hearts and minds through vision, edu-
cation and information (Meadows et al. 2004; Daly 2005; IUCN 2006).
A new environmental ethics* might bring about frugality in the con-
sumption of goods and services. Sufficiency is the answer to greed
and ‘conspicuous consumption’ (Veblen 1899/1967; Frank 1999). The
rewards of a simpler ‘good life’ would be physical well-being and spir-
itual gratification from solidarity with the world’s poor and future
generations (Sachs 1995; Segal 1999). But who is to monitor and control
overconsumption? Frugality and moderation have been preached since
ancient times (Figure 4.2), without much success. Unfettered greed has
indeed been the cause for the 2008–9 economic crisis. Still, do we really
want governments, churches and activists to determine what is good for us?
Ecological economists seek to change corporate behaviour, too. They do
this with tools of advocacy, suasion and information. Some enterprises do
now tout corporate social responsibility for their environmental impacts
on neighbourhoods and beyond (Figure 4.3). In this, they are encouraged by
international organizations.* But should boardrooms become environmental
and social policy-makers? In reality, caring about environmental stakehold-
ers, at the possible expense of the company’s shareholders, might work only
in times of high profits or for purposes of corporate image building.
The Business Council for Sustainable Development, a predecessor of
the World Business Council for Sustainable Development (WBCSD n.d.),
Figure 4.2 μ
ηδέν ’άγαν, nothing in excess: supposedly an inscription on the ancient
temple of Apollo at Delphi.
Figure 4.3 C
orporate social responsibility. The Newgreen company cares now about
the environment. Will lowering the flows of pollutants (and increasing
costs) reduce revenues and profits?
which is a coalition of some 200 international companies, coined eco-

efficiency as an effective environmental strategy of enterprises. Essentially,
eco-efficiency is a matter of environmentally sound technology, which
allows continuing or even increasing economic output with less environmen-
tal impact. Together with sufficiency it is the micro-economic counterpart
of the macro-economic dematerialization strategy. Note that the Factor 4
goal of quadrupling resource productivity (Chapter 3) also puts its faith
in examples of improved technologies, heralding an ‘efficiency revolution’
(von Weizsäcker et al. 1997: xviii).
A more ambitious version of eco-efficiency is metabolic consistency.
Consistent production and consumption techniques are in harmony with
nature’s metabolism. Some even argue that such harmony results in zero
emissions since nature supposedly does not generate any waste.* Most
ecological economists do not see technology as the saviour, however, as it
has been the culprit of many environmental sins (cf. Chapter 7). They also
stress rebound effects from resource savings that could increase production,
consumption and consequently environmental impacts. For example, the
use of more fuel-efficient cars, which are less costly to drive, might increase
driving and car purchases. Jevons (1865/1965) is credited with originally
raising this issue for improved fuel production in the United Kingdom.
The least effective strategy is probably moral suasion, as in calls for
changes to our lifestyles. It may pave the way, though, for accepting stronger
measures of environmental rules and regulations. Imminent, irreversible
and potentially catastrophic environmental impacts would justify such a
proactive response. Command and control policies set and enforce envi-
ronmental standards and regulations. Typical measures are the prohibition
of hazardous products and production processes, the prescription of specific
production techniques, including reuse and recycling of wastes, obligatory
insurance for potential environmental damage and land appropriation for con-
servation. Command and control measures can ensure fast and transparent
implementation, but need to be implemented in time to avoid the situation of
Figure 4.4. The measures also need to survive the legislative period when
they were enacted. Politics may well shorten the life of rules and regulations
intended to address long-term sustainability issues. Remote bureaucracies
that implement rules and regulations tend also to be less knowledgeable and
efficient than in situ consumers and producers (cf. Chapter 7).
When it comes to implementation, the above strategies refer to a profusion
of environmental protection measures. Environmental standards, regula-
tions, fiscal incentives, education, information and advocacy reflect widely
differing and frequently conflicting priorities and policies. The basic prob-
lem is the lack of a unifying framework or theory for ecological economics.
Such a framework should facilitate the integrative analysis of how to sustain
Figure 4.4 C
ommand and control. Legislation and rules prohibit environmentally
damaging production and consumption practices such as slash and
burn in deforestation. To be effective, rules and regulations need to
be enforced by the executive powers. Such response to environmental
destruction comes often too late or is abandoned too early.
the environment and economic activity. Existing measures and models of
ecological economics fail to clearly link environmental limits and economic
activities. They also fail to show what combinations of environmental
and economic policies are most efficient in meeting environmental and
economic objectives. Integration is indeed the key to sustainability. Part 2
explores economic theory and accounting to this end.
Want to know more?

The thresholds of ecosystem resilience are difficult to establish. Ciriacy-
Wantrup (1952) and Bishop (1978) proposed, therefore, to set safe
minimum standards (SMS) that extend conventional cost–benefit
analysis to environmental concerns (Chapter 5). The purpose is to insure
against uncertain, irreversible and unacceptable impacts. Crowards (1996)
critically reviews the rather opaque notions of uncertainty, irreversibility
and acceptability adopted for determining the SMS. Nonetheless, ecological
economists picked up the idea of SMS for making the norms of ecological
sustainability and sustainable development more operational (Chapter 9).
Contrary to relatively objective assessments of how much nature
there is and will be (and, to some extent, we need), prescriptions of
what we should do lead into the realm of morals and ethics. Ecological
economists reject the utilitarian notion of homo oeconomicus, unworthy
of homo sapiens (Faber et al. 2002). Continuing overexploitation of the
planet’s resources calls, in their view, for frugality and, where necessary,
environmental regulation (Rennings et al. 1999). A new environmental
ethics underlies these calls and their prescriptions. Environmental ethics
goes beyond frugality, recognizing the ‘intrinsic value’ of nature and in
particular of non-human life (Elliot 2001). Also, limits in the availability
of nature’s services raise issues of equity in their distribution, within
and between generations. See Part 3 for the discussion of this social
dimension of sustainable development. The difficulty of reaching
consensus on philosophical questions is the reason why the Rio Earth
Summit abandoned the idea of creating an Earth Charter in favour of a
weaker, human-needs-oriented, Rio Declaration (United Nations 1994).
Non-governmental organizations continue to promote an Earth Charter
Initiative <http://www.earthcharter.org/> (accessed 19 June 2011).
Profit-maximizing enterprises are the institutional embodiment of
homo oeconomicus. It may therefore be surprising that a growing number
of enterprises seem to subscribe to corporate social responsibility,

possibly in response to calls by international organizations (Crook
2005). The United Nations promote corporate social responsibility as
part of public–private partnership (United Nations 2003) and of a Global
Compact (United Nations Procurement Division 2004). The European
Commission, Enterprise and Industry (2011) committed ‘to promote
Corporate Social Responsibility as a key element in ensuring long
term employee and consumer trust’. It remains to be seen whether the
recent economic downturn has thwarted corporate social responsibility.
Corporate environmental accountants (Gray and Bebbington 2007) are
sceptical: despite their sustainability rhetoric, corporations are bound to be
accountable to shareholders rather than to environmental stakeholders.
The beauty of metabolic consistency (Huber 2004) or biomimicry (as
it is sometimes called: Biomimicry Institute 2007–2011), is the idea of
copying nature’s production processes. The Zero Emissions Research and
Initiative (2011) believes that fully reusing or recycling any waste and
pollutants in production can change the mindsets that dominate markets;
poverty alleviation and sustainability would be the result. However, the
limited amount of – mostly agricultural – case studies has not so far been
able to turn consistency into a silver bullet for greening the economy. Cradle-
to-cradle design of production caters to similar objectives, but is probably
overoptimistic in vying for the ‘transformation’ of cradle-to-grave economics
(McDonough and Braungart 2003). Some industrial ecologists also contest
the no-waste-in-nature argument (Ehrenfeld and Chertow 2002).

• Do we need economics for either visionary changes of hearts and minds
or rules for good environmental behaviour?
• How useful are calls for sufficiency in consumption, and corporate
social responsibility in production? Are they heralds of a new environ-
mental ethics?
• Command and control are effective instruments of policy implementa-
tion; they are also more judgemental. Who are or should be the judges?
• Is delinking environmental impacts from economic growth the main over-
all strategy of attaining ecological sustainability? How practical is it?
• What should be the purpose of a unifying framework or theory of
ecological economics? Do we need it?
Part 2
Economic sustainability
How much for nature?
5 What is the value
of nature?
• Environmentalists (and some ecological economists) accept

nature’s own values rather than economic ones
• Environmental economists recognize the scarcity of environmen-
tal services; they put a price on environmental externalities to
correct market failure
• Cost–benefit analysis offers techniques for determining
economic values of environmental goods and services
• Discounting future environmental costs and benefits obtains
their net present value
• Estimates of the cost of global warming differ widely
• The world’s value of nature’s services might exceed world GDP
A cynic, according to Oscar Wilde, is ‘a man who knows the price of

everything and the value of nothing’. For environmentalists this could be
the definition of an economist (Figure 5.1); but do they know the value of
nature?
Material flow accounts show the economic system embedded in the
physical world – a world that poses ultimate limits to the provision of
economic and environmental goods and services. Ecological economists
believe that we have violated these limits. Nature’s own values of survival
and reproduction should therefore overrule human preferences (Chapter 3).
Disdaining economic pricing of nature, environmentalists and ecological
economists resort to ethics or vision for setting environmental norms and
standards (Chapter 4). Implementing the standards by rules and regulations
does not leave much room for choice, the backbone of economic theory.
Curbing population growth and economic activity appears to be the only
way to save the earth.
50 Economic sustainability
Figure 5.1 The value of nature: do economists know it?
Environmental economists are more optimistic about our closeness to

ultimate environmental limits. They consider the evidence for environmental
disaster as inconclusive but admit to increasing scarcity of environmental
services. In this case, we do have choices. We can pay for and use scarce
economic and environmental goods and services according to their costs
and our preferences. The problem is that despite their scarcity the neces-
sary rationing tool, the market price, may not be available: nature’s services
are usually not, or not correctly, traded and valued in markets. Table 5.1
classifies environmental non-market effects as intended or unintended
impacts by and on producers, consumers and the government.
Figure 5.2 depicts the classic example of a non-priced negative impact:
smoke from a factory dirties the nearby laundry with impunity since markets
ignore the damage of pollution. Economists call such unaccounted effects
an externality. Externalities are unintended impacts of production and con-
sumption on other production and consumption activities. Environmental
externalities are, in particular, the effects of pollution and wastes on the
production costs of producers and the health and well-being of consumers.
Depletion of natural resources could be an externality if it is unintentional
as in the case of the ‘tragedy of the commons’ (Chapter 3). Governmental
mismanagement can also generate external effects if lack of knowl-
edge or bureaucratic inefficiency is the cause. Conspicuous consumption
(Chapter 4) can produce an external consumer–consumer effect: unnecessary
What is the value of nature? 51
Table 5.1 Environmental non-market effects of economic activity and policy
Economic Unintended externalities Intended effects

agents
Producers Consumers Govern- Producers Consumers Govern-
ment ment
Producers Pollution, Pollution, Illegal Corporate Environ-
depletion ecological market social mental
services control responsi- lobbying,
bility, corrup
recycling tion
Consumers Pollution Pollution, Recycling, Environ-
conspicuous reuse mental
consumption lobbying,
corruption
Government Policy Policy failure Environ- Environ-
failure (errors, mental mental
(errors, inefficiency) regulation protection
inefficiency)
and possibly unhealthy overconsumption could be the result of ‘keeping

up with the Joneses’. Environmental externalities can also be positive.
Agriculture often creates pleasing landscapes and habitats for species, such
as birds and hedgehogs, and may preserve genetic resources.
Intentional non-market effects in Table 5.1 can be beneficial or detrimen-
tal. Governments provide public goods such as security and environmental
protection. Markets cannot or should not deal with such goods and serv-
ices because their use does not affect supply, and nobody can or should be
Figure 5.2 E
nvironmental externality: Pigou’s (1920) smokestack-and-laundry
example. Who bears the damage of pollution? Who should pay for it?
excluded from their benefits. Comparatively inefficient government, rather
than the market, has to decide, therefore, on the provision of public goods
to society. The question is, how much of a good thing do we need? In the
absence of markets, cost–benefit analysis helps to evaluate governmental
programmes and projects (Chapter 7). Socially responsible corporations
(Chapter 4) and individuals may also create positive non-market effects on
purpose. They could protect or improve environmental conditions in their
neighbourhood, and reuse or recycle their wastes. On the other hand, an
‘uncivil’ society of consumers and producers can generate public ‘bads’.
Table 5.1 shows corruption and non-criminal but still distortive lobbying
as the intended manipulation of government policy by producers and con-
sumers. Powerful oil and coal mining companies are known, for example,
to pressure governments into subsidizing production at the expense of the
environment.
Ignoring environmental externalities is an important reason for market
failure. Markets fail because they cannot find and apportion the correct scar-
city values of externalities to economic activities. Basic textbook economics
tells us that ignoring these effects by those responsible for them causes the
misallocation of scarce resources. As a result, the economy generates less
economic welfare than it could if economic agents bore the costs of inflict-
ing environmental damage and reap the benefits of free services.* For this
reason, environmental economists propose the use of market instruments for
‘internalizing’ externalities into the plans and budgets of economic agents
(Chapter 7).
Different valuation techniques, including those used in cost–benefit
analysis, can assess scarcity values. Depending on the effects of environ-
mental externalities on consumers or producers, one can distinguish:
• demand-side valuations, which try to measure people’s well-being

gained (utility) or lost (damage) from a decrease or an increase of envi-
ronmental impacts; and
• supply-side valuations, which measure the costs of using environmen-
tal services in production and of mitigating environmental impacts,
notably by the government.
Demand-side valuations include interviews, simulation of markets, esti-

mates of travel cost to environmental amenities, and comparisons of real
estate with different environmental qualities. In particular, surveys of
the willingness to pay for the use of environmental amenities, or to be
compensated for their loss, seek to assess the utility or damage value of
environmental services. Demand-side valuations are controversial. They
suffer from well-known problems of measuring and aggregating utility,
which includes hardly quantifiable ‘consumer surplus’.* Further distortions
include free-rider attitudes and ignorance about environmental effects in
interviews (Figure 5.3). Supply-side valuations of costing the avoidance or
reduction of environmental impacts are less controversial. They are well
established in cost-effectiveness analyses* and can build on the accounting
tools of enterprises and national environmental accounts (Chapter 6).
Figure 5.4 shows the different categories of the total economic value of
an environmental amenity. Economists define the total value of an environ-
mental asset like a forest or beach as the utility or welfare derived from the
actual use, optional use or non-use of the asset. Non-use can be a source
of well-being when it creates satisfaction about the conservation of nature
and its species. Ultimately, the idea is to combine supply and demand in
fictitious (modelled) markets for environmental services. Under ideal com-
petitive market conditions the resulting prices determine the optimal use
value of environmental goods and services.*
Figure 5.3 How much for an elephant? Willingness-to-pay surveys suffer from
ignorance about the costs and benefits of maintaining environmental
amenities and free-rider attitudes of respondents. Who should put a
value on our ‘life companions’? Does it make sense to add up the above
values?
TOTAL ECONOMIC VALUE
USE VALUE NON-USE VALUE
Market value Non-market Optional use Existence

value value
Figure 5.4 T
he total economic value of an environmental amenity consists mostly
of welfare generated by actual use, e.g. of fish caught and sold or non-
marketed recreation found in nature. Optional use and non-use may also
create welfare through satisfaction about reserving natural resources for
future generations or from knowledge about the existence of cherished
species such as elephants or dolphins.
To assess the long-term sustainability of the supply and use of eco-

nomic and environmental goods and services, one would have to find
their expected costs and benefits. Ecological economists tend to treat this
question as a matter of ethics (Chapter 4). Solidarity with future genera-
tions demands that we leave them an intact environment. This may reflect
nature’s own values, but it is still a human judgement by those who hold
nature in particularly high esteem. Should their opinion and high standards
overrule economic preferences that consider future and uncertain costs and
benefits as less significant than current ones?
Economists answer in the negative. They point out that markets discount
the investment in a durable capital good to a lower present value since the
returns to this investment are not earned immediately but in the future.
Despite the absence of markets for environmental assets, environmental
economists and accountants extend this discounting to the value of ‘natural
capital’ (Chapters 6 and 7). Discounting future environmental damage to its
present value is rather optimistic when reserving lower funds now to tackle
damage in the future. Note that funds ‘freed’ in this way can earn interest or
returns from other investments.
Applying a lower social discount rate reflects the pessimistic environmen-
talist view of pending disaster. Zero discounting, in particular, treats future
damage as if it were to happen any moment. This would require budgeting
the full cost now of preventing or mitigating the potential damage. Inter-
generational equity reinforces this argument. Adding future damage costs
to present ones assumes that the current generation feels the pain of future
generations as much as its own. Figure 5.5 applies discount rates to the case of
the ‘worst possible nuclear accident’. Such an assessment would burden the
current population of a country with the enormous total damage costs of up
to US$8 trillion. Marginal economic analysis becomes irrelevant in this case.
On the other hand, the figure shows that discounting future damage saves
economic analysis from irrelevance: even low discount rates reduce dramati-
cally the present value of environmental damage and its mitigation costs.
Climate change is a good example to illustrate the effects of discounting
and welfare valuation, and their validity. Chapter 2 described global warm-
ing as a surrogate for environmental deterioration. It also pointed out that
only a comparison with other environmental and socio-economic concerns
could assess the relative significance of global warming. In the absence
of a common physical measuring rod, our best bet is to use economic val-
ues to make this comparison. Table 5.2 illustrates with a few key examples
the wide range of global cost estimates for climate change. The costs are
either damage from inaction, or abatement costs from responsive action.
The widely discussed review by Stern (2006) warns that inac-
tion might generate a global warming of 5–6°C by the year 2100. Such
9,000
8,000
7,000
6,000
Billion $
5,000
4,000 r = 1%
r = 3%
3,000
2,000
1,000
0
11
00
00
00
00
00
00
00
00
00
20
21
22
23
24
25
26
27
28
29
Year
Figure 5.5 D
iscounting the damage of a nuclear meltdown. The damage from
the worst possible outcome of a nuclear accident may be as high as
US$8 trillion (Welfens 2012). Applying a relatively low discount rate
of 1 per cent lowers the present value of the damage and corresponding
investment in mitigation to less than half, assuming that the accident
will happen by the end of the century. A higher, frequently applied rate
of 3 per cent obtains only 7 per cent of the original value. Expecting the
accident after 500 years discounts the anticipated damage to negligible
values even for the low discount rate.
Table 5.2 Global cost of climate change
Total damage costs Total abatement Net gain

($, % of GDP) costs ($, % of ($, % of GDP)
GDP)
IPCC (2007b) 1–5%a 0.2–2.5%b

Stern (2006) 5–20%c 1% (–2% to 5%)e $2.5 trillionf
$2.5–9.8 trilliond 0.13%g
Nordhaus (2008) $22.6 trillionh $2.2 trillion j $3.1 trillionk
2.5%i 0.16%l
Notes:
a Global mean loss for 4°C global warming by mid- to end-century.
b In 2030, for stabilizing greenhouse gas concentration in the atmosphere in 2100 or later
at 535–590 ppm CO2 equivalents (CO2-eq), resulting in global temperature increase of
2.8–3.2°C over pre-industrial levels; costs are percentages of baseline GDP.
c Average loss of welfare (percentage of global per-capita consumption ‘now and forever’),
assuming 5–6°C global warming by 2100.
d In 2006.
e In 2050, annual cost of 500–550 ppm CO2-eq stabilization.
f Net present (2006) value of benefits of strong action now (zero time preference
discounting).
g Percentage of total future discounted world income, estimated at $2,000 trillion by
Nordhaus (2008).
h Present value (2005, discount rate 4%) for no-emission control and global warming
of 3.1°C (since 1900 and by 2100).
i ‘Best guess’ for 2100.
j Present value of optimal policy at $7.4 carbon (dioxide) tax in 2005, increasing to $55.1
in 2100.
k $5.3 trillion (damage reduction: not shown in the table) minus $2.2 trillion (abatement
cost), limiting global warming to 2.6°C in 2100.
l Percentage of discounted total future income ($2,000 trillion).
temperature increase would bring about damages of at least 5 per cent of global
per-capita consumption ‘now and forever’ (Stern 2006: x). On the other
hand, spending about 1 per cent of the world’s GDP by 2050 would stabilize
greenhouse gas concentrations and keep global warming below 3˚C. Strong
action now would gain us a high net present benefit of 2.5 trillion US dollars
(discounted at rather obscure rates).
This gain appears to be similar to the US$3 trillion of net present ben-
efits calculated by Nordhaus’s (2008) model of optimal climate policy.
The benefits are the result of applying an optimal carbon price (and
tax) to the world economy (Chapter 7). Nordhaus (2008: 87) dismisses,
however, Stern’s modelling as ‘extremely expensive’. In a special model
run he applies Stern’s ‘near-zero’ discounting to climate investments while
applying more realistic real interest rates of about 5.5 per cent to the rest
of the economy. A loss of US$14 trillion, rather than any gain, appears to
be the outcome of Stern’s high and costly early emission reduction. Stern
justifies his low discounting as a matter of inter-generational equity, which
discredits any significant discounting.
The extensive footnotes of Table 5.2 indicate that all cost and benefit
figures are at best rough estimates. This is the case despite the reliance of
both Stern and Nordhaus on generally accepted physical and monetary data
provided by the Intergovernmental Panel on Climate Change (IPCC 2007a,
2007b). Different concepts, time frames, coverage of climate impacts,
valuations, modelling techniques and model assumptions impair the com-
parability of these and many other cost calculations (see also Chapter 7).
The inconvenient truth is: we do not have an unequivocal evaluation of the
importance of climate change.
A group of ecological economists defied the problems of global welfare
measurement and assessed the value of the world’s ecosystem services
(Costanza et al. 1997b). Their estimate of US$33 trillion in 1994 exceeds
that year’s value of GDP by US$6 trillion (Figure 5.6). The world’s people
thus appear to be willing to spend more on nature than they earn – a highly
improbable suggestion. Apart from the difficulty of covering the myriad
of ecosystems and their services, the study takes on the non-measurable,
marginal utility and global welfare.
Agricult
ure, fore
fishing 1 stry,
.1 Marine
Industry waters 2
8.0 1.0
Services Land 1.0
5.7
Other 12 Forests
.2 Other ec 4.7
osystem
s
6.6
World G
DP
$27 trilli World va
on lue
ecosystem of
services
$33 trilli
on
Figure 5.6 H
ow much for nature? How much for economic output? Costanza et al.
(1997b) estimated the value of the world’s ecosystem services in 1994
at US$33 trillion within a confidence range of US$16 to US$54 trillion.
World GDP then was US$26.9 trillion at current prices.
If nothing else, the bewildering array of monetary values for climate
change effects and nature’s services indicates that there are environmen-
tal costs to be reckoned with. Conventional economic analysis and policy
ignores (externalizes) these costs. For a more accurate picture of economic
performance, the costs of environmental depletion and degradation need to
be accounted for – preferably in a commonly agreed system or framework.
Such a framework should provide clear concepts, compatible environmen-
tal and economic classifications, and commensurable indicators. The next
chapter endeavours to do just this by expanding the widely used economic
accounts and balance sheets.
Want to know more?

Market failure from externalities is basic textbook economics. Together
with other external effects, environmental externalities prevent the
attainment of maximum welfare, referred to in economic analysis as
Pareto optimality. In a Pareto-optimal situation, generated under perfectly
competitive conditions, no change in production and consumption
patterns can improve the well-being of any person without detracting
from the well-being of another person. The reason is that in competitive
markets the prices of goods and services are equal to their marginal
production cost and consumption utility. At this point, the economy is
in a state of general equilibrium. The economic welfare generated by
Pareto optimality ignores distributional effects such as welfare gains
from poverty alleviation. This is a social concern, addressed in particular
by the sustainable development paradigm (Chapter 9). For the analysis of
long-term sustainability economists suggested to aim at ‘potential Pareto
improvement’ for ‘dynamic efficiency’; the inter-generational distribution
of welfare should be left to politics (Stavins et al. 2003).
Demand and supply in actual or modelled markets determine the price
as the optimal unit value of the most efficient uses of natural resources
and environmental sinks. Figure 5.7 shows the demand curve D for an
environmental source or sink service (ES ) as a function of marginal
benefit (MB ) from using the service. The value of marginal benefits (and
willingness to pay) could increase towards infinity with mounting scarcity
of vital resources such as water, air or fertile land. The supply curve S
represents the marginal costs (MC ) of supplying the environmental service.
The near-vertical part of the supply curve shows limited availability of
the service, obtained from an exhaustible natural asset. In this case,
the marginal supply costs tend to become infinite as supply approaches its
limit. The supply and demand curves intersect at point I, where actual or
simulated supply and demand negotiate a consensus price p. In turn, price
p determines the optimal use level esopt of the environmental service. The
figure also shows the sub-optimal oversupply es that could occur when
cost-effectiveness analysis replaces the marginal benefits curve D by a
fixed standard D of maximum use of the environmental service.
MB, MC ($) D(MB) D S(MC)
CS
I
p
PS
ES (ha, t)
0 esopt es esmax
Figure 5.7 Economic values of an environmental service.
Figure 5.7 illustrates the different economic values that determine the
costs and benefits of environmental services:
• The product of esopt and p is the actual (observed) or hypothetical

(estimated or modelled) market value of the environmental service.
• If we add the – most likely indeterminate (no intersection of D and
the ordinate) – consumer surplus CS (under the demand curve D
and above the pI line) to the market value, we obtain the equally
indeterminate total economic (welfare) value of the environmental
service (for an overview, see Dziegielewska 2009). This is because
CS reflects the willingness of consumers to pay a higher price than
p for each amount of the service that is lower than esopt. Note that
the total economic value can only be determined for environmental
services, for which close-to-zero supply at a limited cost level would
be acceptable to consumers, at a reasonable price.
• In case of non-priced, non-marketed (free) goods and services CS
actually represents their total economic value.
• Producer surplus PS (above the supply curve, up to the market price

line pI ) or rent of a priced resource is the net value to the supplier
of a natural resource or service; considering that the supply curve
represents the marginal cost of supply, this value is the producer’s
short-term profit (ignoring fixed costs) from selling an environmen-
tal resource or service.
Over the lifetime of the resource the discounted value of all the net benefits
(rents) gained is an estimate of the value of the natural capital stock,
from which environmental services are drawn (cf. Chapter 6). It is at this
value that an environmental asset would be traded if there were a market
for it. Such estimates are highly uncertain, however, as new discoveries,
notably of oil and gas deposits, affect resource prices. Beyond economic
profitability, a social discount rate, which is normally lower than the rate
of return to capital investment, could reflect society’s desire to preserve
a natural asset for future generations. Hepburn (2007) reviews the use
of discount rates for attaining economic efficiency or inter-generational
equity; declining rates might ‘reduce the tension’ (Hepburn 2007: 120)
between the two philosophical positions.

• Why do markets ignore environmental problems? Should they deal
with all environmental source and sink services and the natural assets
that provide them?
• Should we have a market for environmental protection?
• Is pricing the priceless an oxymoron? How can we measure the source
and sink services of nature and compare them with economic goods
and services? Why should we do so?
• What is the value of an elephant (Figure 5.3)?
• What are the costs of action and inaction on climate change (Table 5.1)?
Is it a good idea to discount uncertain but possibly disastrous future
effects of climate change?
• What is the economic value of nature (Figure 5.8)? Do we need to
know?
• What are the costs of climate change? Do we need to know them?
• Is adding up the weight (mass) of material inputs a better way of
assessing the significance of the environment for our well-being and
the sustainability of economic activity?
6 Accounting for economic
sustainability
• Economic sustainability can be defined in theory as non-declining

economic welfare
• The Genuine Progress Indicator is a flawed measure of economic
welfare
• The System for integrated Environmental and Economic Accounting
introduces natural capital into the System of National Accounts
• Produced and natural capital maintenance is an operational concept of
economic sustainability
• Maintaining the value of produced and natural capital obtains weak
sustainability
• Positive environmentally adjusted net capital formation indicates a
sustainable world economy
• Negative capital formation of African and Latin American countries
signals non-sustainability of their economies
The valuation techniques of Chapter 5 help assess the economic

significance of environmental assets and their services. Their values do not
tell us, however, whether they are sustainable or how they affect the sustain-
ability of the economy. With the objective of welfare maximization in mind,
economists define economic sustainability as non-declining economic
welfare (Pezzey 1989). In practice, GDP or personal consumption serves
as a proxy welfare measure, despite national accountants arguing ‘against
the welfare interpretations of the accounts’ and their indicators (European
Commission et al. 2009: 12). Still, GDP continues to be blamed for misrep-
resenting the economic welfare and happiness of society.*
Economists Nordhaus and Tobin (1973) attempted to turn net national
product into a more convincing measure of economic welfare. They added
the value of welfare-enhancing household services and leisure, and deducted
the value of externalities and ‘regrettable’ expenditures. Further costing
(deduction of the value) of a ‘capital-widening requirement’ (Nordhaus and
Tobin 1973: 514) is to sustain per-capita consumption of a growing popula-
tion. Regrettables also go under the name of defensive expenditures, which
are thought to maintain rather than increase human welfare; they include
environmental protection and other costs of mitigating the hazards of trans-
portation, disease and security (Leipert 1989).
Some ecological economists realized that their ecological sustainability
concept (Chapter 3) lacks a connection with economic activity. They took up
the idea of correcting personal consumption for purposes of welfare meas-
urement and advanced an Indicator of Sustainable Economic Welfare
(ISEW). Unsurprisingly, the ISEW leans heavily toward the negative side
of welfare losses (Daly and Cobb 1989). The intention is apparently to
prove a ‘threshold hypothesis’ (Max-Neef 1995), according to which wel-
fare reaches a turning point because of the effects of high-level economic
growth. First estimates of a modified ISEW, the Genuine Progress Indicator
(GPI), seemed to confirm the hypothesis for the USA (Cobb et al. 1995).
Revised calculations, shown in Figure 6.1, dilute the hypothesis: they
indicate stagnating welfare since the 1970s, with GDP continuing to increase
(at least until the 2008–9 recession).
400
350
300
250
200
150
100
50
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2004
Personal consumption GPI GDP
Figure 6.1 G
PI, GDP and personal consumption per capita, USA, 1950–2004 (in
constant prices, 1950 = 100). GDP and personal consumption moved
in tandem with the GPI until the 1970s. Since then they have separated
in a scissor movement: economic welfare (GPI) has stagnated while the
economy has shown steady growth (until 2004).
Source: Talberth et al. (2007).
Accounting for economic sustainability 63
Major flaws impair the validity of the GPI as a measure of sustainable
welfare. They include:
• the arbitrary selection and distinction of regrettable and desirable expen-

ditures. Should we really count expenses for environmental protection,
natural disasters, defence, security and accidents as regrettables when
in most cases we would be worse off without them? How about food
and drinks with detrimental health effects?
• the opaque valuation mix of market values for natural resource use
with controversial welfare/damage values for ecosystem services and
environmental externalities;
• the mixing of non-comparable and possibly overlapping sustainability
concepts of non-declining welfare and capital maintenance.
The merit of the GPI is to draw attention to the misuse of GDP as a wel-
fare measure. The authors seem to be blinded, though, by their antagonism
towards mainstream economics, proclaiming that the GPI ‘would blast
away the obfuscatory polemics of growth – and the devious politics that
goes with it’ (Cobb et al. 1995: 72). Unfortunately they throw out the baby
with the bath water, ignoring possibilities of using the quantifiable concepts
and checks and balances of the national accounts for modifying economic
indicators.
The United Nations System for integrated Environmental and
Economic Accounting (SEEA) applies as much as possible the conven-
tions of the System of National Accounts (SNA) adopted world-wide.*
The fundamental approach of the SEEA is to define, classify and introduce
natural capital in the national accounts. Figure 6.2 illustrates the inclusion
of ‘environmental assets’ (an accounting term for natural capital) in stock
(asset) and flow (supply and use) accounts. The shaded areas represent the
environmental part of the integrated accounts. The figure also shows the
overlap of the two types of accounts, where changes in stocks are flows
of capital formation and capital consumption. The SEEA focuses on the
measurable aspects of sustainability, which are the costs of avoiding a
decline in income, output and environmental assets, rather than the welfare
effects of such decline. For this, the SEEA argues for the use of market
prices for natural resources that are traded in markets, and of maintenance
costs for avoiding or reducing environmental externalities.
As a result of the incorporation of natural capital, the production
accounts include not only the use and consumption of produced capi-
tal, but also the environmental cost of natural capital consumption.
Natural capital consumption is the ‘permanent’ depletion and degrada-
tion of environmental assets – beyond natural regeneration. Corporate and
OPENING STOCKS Produced assets Environmental assets

+
PRODUCTION FINAL CHANGES IN CHANGES IN REST OF THE
(i=1,2,…,n industries) CONSUMPTION CAPITAL STOCKS CAPITAL STOCKS WORLD
SUPPLY OF PRODUCTS Outputs (Oi) Imports (M)
Inputs (Ii) Final Gross capital

USE OF PRODUCTS Exports (X)
consumption (C) formation (GCF)
PRODUCED CAPITAL Capital consumption Capital
USE (CCp) consumption (CCp)
Environmental cost (EC)
NATURAL Numerical capital
(of natural capital consumption (CCn)
CAPITAL USE
consumption)
+
Other asset changes Other asset changes
=
CLOSING STOCKS Produced assets Environmental assets
Figure 6.2 S
EEA: incorporating natural capital in the national accounts. The verti-
cal asset accounts show the inclusion of natural capital (environmental
assets) in opening and closing stocks at the beginning and end of an
accounting period. During this period the changes in the value of natural
and produced capital overlap with the flow (supply and use) accounts as
capital formation and capital consumption. Note that the environmen-
tal costs of the production accounts are mirrored in the natural capital
consumption value of the asset accounts, in line with the treatment of
produced capital consumption in the conventional accounts. Other asset
changes such as natural growth (in the wilderness) or the effects of natu-
ral disasters are not the result of economic activity; they are therefore
excluded from the (costing and pricing of the) supply and use accounts.
Source: © Eolss Publishers Co Ltd. From Bartelmus (2001), modified, with permission from
Eolss Publishers Co. Ltd.
national accountants practise sustainability when setting aside an allow-

ance for replacing worn-out capital goods such as buildings or machines.
They do this to prevent a decline in outputs and incomes. Such ‘prudent
conduct’ (Hicks 1939: 172) is actually built into the key economic concept
of income, which counts only net revenues that are sustained by saving and
reinvestment.
Economists distinguish produced (fixed) capital from natural, human
(labour) and social (networks) capital. Accounting for human and social
capital is still quite undeveloped because of conceptual – what is capital
consumption? – and measurement problems.* Considerable progress has
been made, though, in natural capital accounting. This is one reason why
this book focuses on sustainability issues that are brought about by the
interaction of the environment and economy. It does not imply that ‘non-
countables’ such as goodwill of businesses, trust or ethics do not count in
sustaining the economy – they just do not add up (cf. Chapter 11).
It is a small logical and ‘prudent’ step to extend the concepts of capital
consumption and maintenance from produced to natural capital. Making an
allowance for reinvestment in and hence maintenance of produced and
natural capital is an operational concept of economic sustainability.
More specifically, it represents combined economic–environmental sus-
tainability of production at the micro level, and of economic performance
and growth at the macro level. The environmental part of this sustainability
concept seeks to avoid a potential decrease in production and consumption
because of the loss of exhaustible raw materials and the costs of environ-
mental degradation. The necessary maintenance costs are a measure of
how much society could and should have expended to avoid or mitigate
environmental degradation and depletion. Investment in the maintenance of
natural capital is an indicator of our caring about environmental quality and
nature’s contribution to prosperity now and in the future.
Deducting the cost allowances for produced and natural capital con-
sumption from economic indicators obtains environmentally adjusted
net domestic product (EDP) and environmentally adjusted net capital
formation (ECF).* Note that EDP defines a green net domestic product,
rather than the generally advocated green gross domestic product (GDP).
Accounting only for natural capital consumption, but ignoring the con-
sumption of produced capital by a green GDP, does not make much sense.
The reason is that both produced and natural capital need to be maintained
to sustain economic performance and growth. Crumbling infrastructure in
the USA and many developing countries reminds us of the consequences of
neglecting the wear and tear of capital goods.
Growing or at least non-declining EDP would indicate that the economy
performed sustainably in the past. This is, however, just a starting point
for assessing future performance. For predictions of future sustainability,
one would have to model trends of EDP with the usual uncertainties and
assumptions in projections of economic growth and its environmental
impacts (Chapters 3 and 7). Lacking long time series of EDP, an alternative
way of looking at economic sustainability is the use of ECF. Positive ECF
indicates that investment in produced and natural capital increased the net
value of capital. The economy performed sustainably in this case by keeping
intact or even increasing the value of its productive capital base.
Maintaining the overall value of capital, rather than its physical stock,
reflects weak sustainability. If reinvestment in a particular type of
natural capital is not possible, other income-generating investments should
take up the slack. Weak sustainability thus assumes that other production
factors can, if necessary, replace the capital goods used up in produc-
tion and income generation. Produced capital goods, in particular, should
substitute for natural (non-produced and exhaustible) capital, at least at the
level of actual use – and not in total as sometimes argued. As discussed in
Chapter 3, weak sustainability thus ignores the existence of possibly
irreplaceable ‘critical’ natural capital. Note also that ignoring human and
social capital and its consumption – difficult to define and measure as
they are – paints a limited picture of making our economies just ‘more’
sustainable.
Research institutes and national statistical services have carried out
case studies of green accounting (Uno and Bartelmus 1998). Data users
and producers are, however, reluctant to adopt the SEEA. In the USA, the
coal-mining lobby, fearing disclosure of environmental impacts, succeeded
in blocking further work by the Bureau of Economic Analysis (Landefeld
and Howell 1998). Despite a positive review by a National Academy of
Sciences panel (Nordhaus and Kokkelenberg 1999), green accounting is
still on ice. Even the United Nations et al. (2003) delayed the publication
of a revised 2003 version of the SEEA until now, when it adopted a reduced
version as a ‘statistical standard’.* Fear of competition and the costs of
more comprehensive environmental-economic accounting might be behind
the reluctance of official statisticians to modify their established accounts,
even as a separate ‘satellite’ system.
Table 6.1 shows the results of a low-cost study of the German economy.
Environmental maintenance costs (EC = CCn) of 59 billion Deutschmarks
are significant, amounting to 3 per cent of net domestic product. From
a policy-making point of view, however, this is hardly an insurmounta-
ble problem for a rich country. Note that the wear and tear of produced
capital (CCp) is five times the environmental cost, indicating that the usual
focus on gross indicators such as GDP and GCF could be misleading when
assessing the success or failure of economic policy. Another study by the
author (Bartelmus 2009) estimated the environmental cost in the USA at
that time at 1.6 per cent of net domestic product, increasing to 2.7 per cent
in 2006.
Globally, environmental depletion and degradation costs amounted to about
US$3 trillion or 6 per cent of world GDP in 2006 (Bartelmus 2009). During
the relatively short time period of 1990–2006, the world economy showed
similar growth rates for GDP and EDP. As mentioned, ECF paints a better
and different picture of the potential sustainability of economic activity: it
indicates the capacity to produce new capital after accounting for the wear
and tear of produced capital and the destruction or degradation of natural
capital. Figure 6.3 reveals large differences in the economic sustainability of
economic growth for the world’s major regions and countries. Positive ECF
in industrialized countries and China shows sustainable economic growth.
Negative ECF in developing countries, notably in Africa, indicates that these
countries have been living off their natural and produced capital base. Overall,
Table 6.1 SEEA case study, Germany, 1990 (billion Deutschmarks)a
Production Final Changes in produced Changes in Rest of the

consumption assets environmental world
assets
Output O = 6,007
Input I = 3,761
Final use GDP = O − I = C + GCF + X − M = 2,246 C = 1,610 GCF = 519 X − M = 117
Produced capital use CCp = 303 CCp = 303
Net product NDP = GDP − CCp = 1,943 NCF = GCF − CCp = 216
Natural capital use EC = 59 CCn = 59
Greened net product EDP = NDP − EC = 1,884 ECF = NCF − EC = 157
Source: Bartelmus (2002), from Table II.3, with kind permission from Springer Science+Business Media B.V.
Note:
a See Figure 6.2 and end-of-chapter ‘Want to know more?’ section for an explanation of symbols and acronyms. Environmental costs and modified indicators
are shown in the shaded cells.
40
30 Industrialized
countries
20 China
10
Asia & Oceania
(developing
0 countries)
Africa
–10
Latin America and
–20 the Caribbean
–30
1900 1992 1995 2000 2004 2006
Figure 6.3 E
CF in world regions (per cent of EDP). Positive ECF in industrialized
countries and China indicates (weakly) sustainable economic growth.
Negative ECF of developing countries of Africa and Latin America presents
a non-sustainable economic performance that diminishes capital for con-
sumption purposes. GDP growth in these countries presents a misleading
picture of the sustainability of economic growth and development.
Source: Bartelmus (2009).
the world economy appears to be sustainable, at least in terms of economic

sustainability. This is quite different from what environmentalists tell us about
ecological non-sustainability of a full world. Of course, weak economic and
stronger ecological sustainability are not directly comparable (Chapter 3). In
Chapter 8, we will look for some ways to overcome the discrepancy between
assessments of ecological and economic sustainability.
This first compilation of global SEEA indicators relied on readily avail-
able international databases for environmental impacts and their costs. Data
gaps, in particular for pollutants, are likely to cause considerable undercov-
erage. This could be one reason for the above-mentioned discrepancy of
sustainability measures. Moreover, a number of methodological issues are
still controversially debated. They include:
• the valuation of environmental degradation, which has been a sore point

between national accountants and environmental economists, notably
in the revision of the SEEA;*
• the aggregation of environmental impacts in physical (non-monetary)
accounts, implying that physical data can reflect overall environmental
damage (Chapter 2);
• the identification, measurement and (e)valuation of critical natural
capital (Chapter 3);
• accounting for a broader sustainability concept, which includes the
maintenance of human, social and institutional capital, possibly as
part of the all-encompassing paradigm of sustainable development
(Chapter 9);
• the inclusion of ecosystems and their services;
• transboundary flows of unsolicited wastes and pollutants;
• the links of national and corporate environmental accounts for improv-
ing data availability and quality, and comparing the environmental
performance of economic agents with sectoral and national results.*
Want to know more?

GDP bashing has proliferated. Cobb et al. (1995) famously asked: ‘If the
GDP is up, why is America down?’ Recently, Stiglitz et al. (2010) explained
‘Why the GDP doesn’t add up’; a European Union sponsored conference
looked ‘Beyond GDP’ (European Commission 2007–10); and a one-day
strategy session of American scholars and officials explored ways to
‘dethrone GDP’ (Talberth 2010). Also, do not miss Alan AtKisson’s GDP
song <http://www.youtube.com/watch?v=qxmVJnwWeTY> (accessed
on 9 July 2011).
In 2008 the government of Bhutan adopted gross national happiness
(GNH) as the measure on which the country’s economic, cultural,
environmental and spiritual policy should be based (Centre for Bhutan
Studies 2008). Like other cornucopian concepts such as sustainable
development (Chapter 9) or quality of life (Max-Neef 1995), the GNH
is a broad measure of human well-being or welfare. Slightly less than
half of Americans experience ‘happiness or enjoyment without a lot of
stress or worry’ according to Gallup (2010) surveys. A World Data Base
of Happiness seeks to synthesize research and surveys of happiness in
people and nations <http://worlddatabaseofhappiness.eur.nl/> (accessed
on 19 June 2011). National happiness seems to have become a rallying
call for those looking for an alternative to GDP.
Almost all countries adopted the System of National Accounts
(SNA) (European Commission et al. 2009) for the compilation of
economic indicators. The indicators summarize activities of economic

agents (government, households, enterprises, financial institutions, non-
profit organizations). Accounting equations make up the system and define
the indicators of economic performance. The most popular indicators
are gross domestic product (GDP), net domestic product (NDP), outputs
(Oi) and inputs (Ii) of a country’s i = 1, 2, …, n industries, as well as
GDP components of final consumption of households (C ), gross capital
formation (GCF), produced capital consumption (CCp), imports (M) and
exports (X).
Some countries prefer to use gross national income (GNI) as the main
indicator of overall economic performance. GNI differs from GDP by the
amount of income payments and receipts to and from non-residents. The
sustainability of an equitable distribution and use of income is more of a
social concern addressed by the broad sustainable development paradigm
(Chapter 9).
Bartelmus et al. (1991) developed the original System for integrated
Environmental and Economic Accounting (SEEA). The SEEA (United
Nations 1993) modifies the above accounting indicators, introducing the
consumption of natural capital (CCn) as environmental cost (EC) into
the production accounts and balance sheets of the SNA (Figure 6.2). The
greening of the economic indicators is the result of deducting the costs
of natural capital consumption from net domestic product (NDP) and net
capital formation. The following equations show how this turns GDP and
gross capital formation (GCF) into environmentally adjusted indicators
of EDP and ECF:
1 ∑ Oi – ∑ Ii = GDP
2 GDP – CCp = NDP
3 NDP – EC = EDP = C + (GCF – CCp – CCn) + X – M
4 ECF = GCF – CCp – CCn
Much of the critique of the SEEA is about its valuations of non-

market goods and services. Bartelmus (2001) discusses the pros and
cons of ‘pricing the priceless’. The latest 2012 version of the SEEA
(Committee of Exports on Environmental Economic Accounting 2012) is
sceptical about monetary valuation – except for the depletion of natural
(economic) resources that enter markets. The 2012 SEEA relegates
the assessment of environmental degradation to planned volumes or

‘experimental ecosystem accounts’ and ‘extensions and applications’.
Omitting environmental degradation from its ‘central framework’ makes
it look like environmental-economic accounting without the environment.
The result is a guidebook that is, at least in part, more a framework for
environmental and economic data than a truly integrated environmental-
economic accounting system.
Attempts at accounting for human capital treat expenditures for
education, training and health as capital formation. For instance,
the World Bank (2006) includes expenditure on education as capital
investment in its adjusted net savings indicator. However, this includes
educational services, which generate immediate satisfaction and are
more in the nature of consumption than long-term investment; also, it is
hardly possible to account for human capital ‘depreciation’ due to loss
of knowledge and decreasing health. To quantify social capital is even
more difficult because of non-marketed ‘intangibles’ such as networking,
norms, social cohesion, trust and (sometimes also included) institutional
and cultural capital. Recent handbooks on social capital therefore deal
mostly with conceptual questions (Castiglione et al. 2008; Svendsen and
Svendsen 2009).
In many ways corporate environmental accounting resembles
the greening of the national accounts. The accountancy profession has
been reluctant to embark on ‘full-cost’ accounting (including the cost of
environmental externalities), favouring physical eco-balances and life
cycle analysis of products (Bartelmus and Seifert 2003: Introduction).
Two international guidelines of corporate environmental management
include internal and external audits for the environmental performance
of a corporation: the ISO 14000 standards (International Organization
for Standardization 2011) are less stringent than the Environmental
Management and Audit Scheme (EMAS) of the European Union
(European Commission, Environment 2011). Application of the
guidelines is voluntary; it is typically motivated by cost savings in natural
resource use, compliance with actual or anticipated environmental rules
and regulations, and an improved corporate image of environmental
accountability.
• What should we sustain: nature, welfare, happiness, development,
income or economic growth? What is measurable and manageable?
• GDP bashing is fashionable. Are welfare and happiness indicators
better measures?
• Should one deduct defensive expenditures from GDP? Should we
remove all outputs of industries that produce inputs into the production
of regrettables? What would be left of the economy?
• Do the modified indicators of the SEEA measure sustainability?
Does the SEEA succeed in pricing the priceless?
• Why do environmentalists, economists and statistical offices tend to
ignore the SEEA?
• Is weak sustainability of capital maintenance a useful feature of
economic performance? Why not use strong sustainability (Chapter 3)?
• Why do most corporations still ignore environmental (full-cost)
accounting? What would environmental costing do to their bottom line?
• What do you make of the – hitherto unaccounted for – environmental
costs of 2–3 per cent of GDP in the USA and about 13 per cent in
China? As we asked in Chapter 1: do (the costs of) environmental prob-
lems outweigh economic benefits?
• What is measurable is manageable! Do you agree? Can we ignore intan-
gible assets and their services, notably of human and social capital?
7 What should we
do about it?
• Environmental externalities and inefficiencies in the provision of public

goods are responsible for market failures
• Cost–benefit analysis helps governments to select environmental
protection programmes; it cannot assess the sustainability of economic
performance
• Market instruments prompt households and enterprises to internalize
environmental externalities in their plans and budgets
• Models of computable general equilibrium analyse short-term effects
of market instruments
• Optimal growth models conceptualize sustainable and optimal economic
growth; they are less useful for practical policy-making
• Technology: problem or solution? Economic analysis is inconclusive
• Rent capture and reinvestment are necessary conditions for sustaining
economic growth and development
Neo-liberal economists believe that unfettered markets are better at

announcing and dealing with environmental problems than the ‘conceited
blueprints of politicians, the hubris of monopolistic businessmen, or the
arrogance of scientists’ (The Economist, 11 September 1999: 20). Relying
on market forces will not do, however, when markets ignore severe environ-
mental externalities.* Externalities, and in particular environmental ones,
cause market failure (Chapter 5). Governments intervene, discouraging
negative externalities, encouraging positive ones and providing necessary
public goods.
Figure 5.7 illustrated the generation of a fictitious market for nature’s
services; the illustration applies also to the supply of public goods and
services by the government, including environmental protection. When
more than one project could deal with a particular environmental problem,
cost–benefit analysis helps select the project with the highest net benefit.
The illustrative example of Table 7.1 compares the net benefits of a log-
ging ban with continuing deforestation at a Philippine resort. Deforestation
would impair tourism and fisheries by generating siltation of coastal waters
and damage to the coral reef. On the other hand, the logging ban would
reduce timber sales and revenues to zero. The logging ban is the efficient
option as it obtains higher revenues over a 10-year period. Note that dis-
counting reduces the current value of revenues, but does not change the
general outcome of the analysis.
Cost–benefit analysis of a project or programme does not capture
economy-wide optimality, as achieved at least in theory by general equilib-
rium analysis (Chapter 5, further reading); nor can it assess the contribution
of a project to the overall sustainability of the economy. The reason is that
implementing a project brings about price and output changes in other
projects and sectors that are ignored by particular project analysis. Despite
these problems and difficulties of measuring environmental damage
(Chapter 5), cost–benefit analysis is still the only way to lift environmental
protection programmes out of the irrationality of political negotiation and
lobbying.
Environmental economists favour the internalization of externalities
into the planning and budgets of households and enterprises. They expect
environmental cost internalization to restore or at least approach optimality
Table 7.1 C
ost–benefit analysis of deforestation: El Nido, Philippines
(US$ thousands)
Option 1: Option 2: Option 1 minus

logging ban continued logging option 2
Gross revenue
(1987–96):
Tourism 47,415 8,178 39,237
Fisheries 28,070 12,844 15,226
Logging 0 12,885 –12,885
Total 75,485 33,907 41,578

Present value
(10% discount rate):
Tourism 25,481 6,280 19,201
Fisheries 17,248 9,108 8,140
Logging 0 9,769 –9,769
Total 42,729 25,157 17,572
Source: Dixon et al. (1994: 45, Table 5), with permission from Taylor & Francis.
Tackling economic sustainability 75
in the economy. International organizations (OECD 1989; United Nations
1994) popularized the idea as the polluter-pays principle. The principle
simply wants people to be accountable for the environmental damage they
cause. Models of computable general equilibrium* claim to find optimal solu-
tions for different scenarios of environmental cost internalization. Standard
textbook economics provides the formalization of how markets may (or may
not) achieve a new general equilibrium. Broadly, one can distinguish the
following policy instruments of environmental cost internalization:
• hard instruments of rules and regulations, which prohibit hazardous

products and production and proscribe safe production techniques;
• soft instruments of subsidies, education and information to bring
out environmental responsibility and ingenuity in corporations and
consumers; and, somewhere in-between,
• semi-soft/hard market instruments of
- product charges for environmental impacts of production and
consumption, and
- creation of markets for environmental source and sink functions.
Note that these instruments reflect also the strategic attitudes of economic
agents tackling environmental limits for production and consumption
(Chapter 4). Figure 7.1 lampoons these attitudes and the typical institu-
tional set-up of environmental policy by governments, markets and civil
society.
Hard instruments of command and control are rapidly and incisively
effective but inefficient in finding the best environmentally sound pro-
duction and consumption patterns and techniques. Rules and regulations
do avoid assessing difficult-to-measure marginal environmental damage
required for optimal market intervention (see below). They are judgemental,
however, when setting environmental standards or targets. Soft instruments
seek to elicit and reward voluntary actions and positive non-market effects.
The benefits of these effects are difficult to assess; they are also insufficient
in offsetting mostly negative externalities.
Market instruments are the classic tools of economics for dealing with
externalities and restoring optimality in market behaviour. The idea is to
prompt economic agents into budgeting for their environmental impacts.
Market instruments are usually aimed at enterprises rather than consumers.
In general, enterprises have better knowledge of their impacts and of the
techniques and costs of avoiding or reducing them. Market instruments
include environmental charges and taxes, and the creation of markets for
pollution permits, natural resource quotas and ecosystem services. In the
Figure 7.1 E
nvironmental policy instruments: command and control to enforce
compliance with regulations (which governments do); sell and buy after
budgeting environmental costs (which markets do); change your life-
style (which environmentalists call for).
case of uncertain high-risk impacts, refundable deposits could be charged

to those suspected or expected to cause the impacts. Figure 7.2 illustrates
how a Pigouvian eco-tax (Pigou 1920/1932) can reduce emissions E from
the production of a marketed good Q. The challenge is to find the optimal
tax rate t so that the price of the good equals its total social (private and
external) marginal cost.
The problems of determining marginal environmental costs and
benefits for purposes of optimal policy show up in costing the impacts of
climate change. Table 7.2 indicates the wide range of marginal damage
estimates by different sources. Among the lowest estimates is Nordhaus’s
optimal carbon price and tax of US$7.4 per ton of CO2 emissions (in
2005). Optimality implies that the marginal damage for the emission of
a pollutant equals the marginal benefits of its abatement. In other words,
optimality is a prescription for spending on emission reduction until the
last dollar spent reduces damage by less than a dollar. The relatively low
level of the optimal tax indicates that an economy-wide modelled tax could
indeed be more efficient than policies based on simple cost comparisons
of environmental action and inaction (Table 5.2). Note that in 2005 the
actual carbon price of the European Union’s Emission Trading System
(EU ETS) peaked at about triple the optimal global-policy price of the
Nordhaus model. Of course, imperfect real-world conditions and partial
coverage of only half of the region’s CO2 emissions are a far cry from the
smooth utility and production curves of a globally optimizing economic
model.
Political expediencies often obfuscate environmental objectives and the
setting of market instruments. For example, in Germany, the proclaimed
objective of an ecological tax reform is to use the revenues from an
P ($)
D S* (MC+MEC)
S (MC )
MEC
p*
p t
q* q Q (number)
e* e E (tons)
Figure 7.2 O
ptimal eco-tax. Supply S (represented by the marginal cost MC of
production) and demand D determine the market price p, output q and
emission e for product Q. Adding the marginal cost of an environmental
external effect MEC to the private marginal cost MC yields a new supply
curve S *, which accounts for the total marginal social cost of production.
Assuming that consumer preferences and the demand function D for Q
remain the same, price p increases to p*, production q decreases to q*
and emission e decreases to e*. The optimal eco-tax rate t is equal to the
additional marginal damage cost MEC* at the intersection of S* and D.
At this point, the total marginal social cost of production MC* + MEC*
equals the equilibrium price p*, which in turn reflects the marginal
benefits of consuming q*.
eco-tax to reduce labour-related taxes. The result should be a ‘double

dividend’ (Goulder 1995) of taxing a ‘bad’ (pollution) and relieving the tax
burden of a ‘good’ (labour). The results are questionable, though, because
other socio-economic objectives, notably fostering employment in coal-
mining states, riddled the reform with exemptions (Bartelmus 2008).
The above policy measures aim to reduce environmental impacts in the
short and medium term. Policy-makers might hope for continuation in the
long run, but cannot of course ensure implementation beyond legislative
mandates. Policies of long-term sustainability also face uncertainties of
forecasting and scenario building. But even mainstream economists real-
ized early on that exhaustible natural resources could undermine economic
growth. Natural resource economists searched, therefore, for an optimal
extraction schedule over the lifetime of an exhaustible resource.*
Table 7.2 Marginal cost of climate change
Marginal damage Marginal abatement

costs ($/tCO2 ) costs ($/tCO2 )
IPCC (2007b) 12a 35b (5–65)

Stern (2006) 85c
Nordhaus (2008) 7.4d (2.6–12.0) 7.4–54e
EU ETS (Ellerman and 30f
Joskow 2008)
World Bank (2006) 5.5–28g
Notes:
a Average peer-reviewed estimates in 2005.
b Mean of range for 550 ppm CO2 equivalent stabilization goal in 2100.
c Marginal social carbon costs, including ‘risks’ in 2006.
d Social cost of no-emission-control scenario in 2005 (with uncertainty range).
e Optimal eco-tax in 2005, increasing to $54 in 2100.
f Highest actual carbon (dioxide) price in 2005 of the European Union’s Emission Trading
System (EU ETS).
g Marginal global damage, 1991–2030.
Neo-liberal economists expressed their laissez-faire view of the rela-

tionship between environmental impact and economic growth in the
environmental Kuznets curve hypothesis. Economist Simon Kuznets
(1955) found an inverted-U relationship between the level and distribution
of income. Grossman and Krueger (1995) detected a similar relationship
between environmental quality and economic growth. Their hypothesis is that
industrializing countries generate initially high and increasing environmen-
tal impacts. Once these countries reach a certain level of prosperity, greater
demand for environmental quality and the transition to a dematerialized
service economy reverse the initial correlation of environmental deterioration
and economic growth (Figure 7.3, part A). Other empirical analyses indicate
that this relationship holds only for a few local pollutants. Some even see a
relinkage of environmental impact and economic growth (Figure 7.3, part B).
Any permanent improvement of environmental quality would then be a mat-
ter of deliberate environmental policy, rather than the automatic result of
economic growth (Barbier 1997).
Rejecting the environmental Kuznets curve hypothesis means that ignor-
ing long-term environmental impacts is not an option. Economists therefore
introduce natural capital and environmental quality in models of optimal
and sustainable economic growth. Their objective is to maximize not only
current but also future income and output, taking environmental damage
and the depletion of natural capital into account. Depending on assumptions
about technological progress and substitution of exhaustible resources the
models determine maximum infinitely sustainable final consumption.* Two
EI EI
A. EKC confirmed B. EKC rejected: re-linkage
GDP p.c. GDP p.c.
Figure 7.3 E
nvironmental Kuznets curve (EKC), confirmed and rejected. Part A
shows the inverted-U relationship of the EKC hypothesis: environmental
impact (EI ) increases with economic growth at low levels of GDP per
capita and decreases after the economy reaches a certain level of income
and wealth. Part B illustrates a relinkage of environmental deterioration
with economic growth after an initial EKC effect.
Source: Bartelmus (2008: 199, Figure 11.1), with kind permission from Springer Science+
Business Media B.V.
issues affect model results, in particular; one is the choice of the discount
rate, the other is the role of technological progress.
Nordhaus’s (2008) optimizing model of economic growth and climate
change applies a market-oriented discount rate of 4 per cent to the values
of climate damage and control. It is a good example of how economists
assess future and uncertain environmental damage and the investments to
reduce it (Figure 7.4). A gradual increase in the optimal eco-tax rates from
US$7.4 in 2005 to US$55 in 2100 is expected to deal efficiently with pro-
jected increases of CO2 concentration in the atmosphere.
Anticipating catastrophic events and citing ethical reasons of inter-
generational equity (Chapter 5), environmentalists favour low social
discounting. They tend to magnify potential impacts, reversing the
high-discounting view of Figure 7.4. Consequently, they oppose a gradualist
policy course and demand strong action now (e.g. Stern 2006). Ecological
economists also argue that high damage costs overwhelm marginal
economic analysis. Just imagine what the total social cost of nuclear energy
production would be if it included insurance for a major nuclear accident
at low or zero discount rates (cf. Figure 5.5). Perhaps surprisingly, a main-
stream economist, Weitzman (2009), supports this view. He uses formal
cost–benefit analysis to show the ‘contentiously subjective’ results of
economic analysis for highly uncertain but potentially catastrophic
Figure 7.4 Economic discounting: should he reverse his telescope?
climate change events; his conclusion is to avoid ‘presenting a cost-benefit

estimate… as if it is accurate and objective’ (Weitzman 2009: 18). Nordhaus
(2008: 147) counters: ‘we should start with the clear and present dangers,
after which we can turn to the unclear and distant threats’.
Besides the highly judgemental setting of discount rates, economic growth
models also differ greatly in their assumptions about the role of technology
(Figure 7.5).* For instance, Koopmans (1973) demonstrates the feasibil-
ity of sustaining optimal growth with the help of technological progress,
while Islam (2001) shows that ecological limits curb economic growth.
A common finding is the need to maintain the value of produced and natural
capital as one condition for sustainability. This corroborates the sustainability
measures of integrated environmental-economic accounting (Chapter 6).
However, optimal growth models show a high degree of abstraction with
questionable assumptions about utility maximization, substitution of pro-
duction factors, markets in equilibrium and technological progress. They
help define economic–environmental sustainability as capital maintenance,
but do not provide realistic policy advice.
Rather than filtering data through mathematical constructs, policy-
makers might be well advised to look directly at the facts and figures of the
past. The closest economics can get to analysis without entering abstract
modelling are the national accounts. These are designed to measure the
variables of economic analysis in terms of observable indicators. Integrated
environmental-economic accounts (Chapter 6) expand this measurement
for the assessment of economic sustainability as capital maintenance.
Figure 7.5 T
echnology the saviour? Or the culprit of environmental deterioration?
Models of sustainable economic growth are inconclusive.
Analysis which stays close to these accounts makes for a realistic sustain-
ability economics. Lacking knowledge about the significance of critical
irreplaceable natural capital (Chapter 3), policy-makers will have to rely
on this benchmark of weak sustainability.
Resource-rich developing countries, in particular, should focus on the
efficient management of their natural wealth. Costing and taxing the deple-
tion of their wealth would not only change individual behaviour but also
generate revenue for the government. Rent capture by taxing the profits of
resource-exploiting industries and reinvesting the rents would turn natural
wealth into productive capital. Otherwise, the blessing of natural resource
endowment might easily turn into a ‘resource curse’ of missed development
and worse.* Figure 7.6 illustrates the success and failure of rent capture in
two southern African countries.
One type of modelling stands out because of its close connection to the
national accounts: input–output analysis is based on input–output tables,
which display the supply and use of goods and services in a detailed inter-
industry account. Input–output tables and analyses reveal connections
between ecological and environmental economics; they might show the
way (explored next) to a common theory of sustainability economics.
3.50
Botswana, per capita GDP
Botswana, per capita wealth
3.00 Namibia, per capita GDP
Namibia, per capita wealth
2.50
2.00
1.50
1.00
0.50
0.00
19 0
19 1
19 2
83
19 4
19 5
19 6
19 7
19 8
19 9
19 0
91
19 2
19 3
19 4
19 5
19 6
19 7
19 8
20 9
00
8
8
8
8
8
8
8
8
8
9
9
9
9
9
9
9
9
9
19
19
19
Figure 7.6 R
ent capture and economic growth in Botswana and Namibia. High rent
capture (by taxation of 76 per cent of resource rents) and investment
in produced capital made for high per-capita growth in produced and
natural wealth and GDP in Botswana. Namibia captured much less of
its rents, and its total wealth declined; the result is non-sustainability
of declining productive capital and a stagnating economy.
Source: Lange (2004: Figure 3), with kind permission from Springer Science+Business
Media B.V.
Want to know more?

Ecological economists hold that, besides monopolies and other market
imperfections, irreversible and disastrous environmental effects render
the marginal analysis of economic optimality irrelevant (Funtowicz
and Ravetz 1991; Daly 1996). In defence, economists argue that a
theoretical ‘vacuum’ can provide valuable insight into complex problems
(Samuelson and Nordhaus 1992: 295), and a ‘sequence of policy reforms’
in less-than-perfect situations will still help to increase overall economic
welfare (Dasgupta 1994: 42). The stalwart of neo-liberal market economics,
The Economist, asserts that ‘markets often correct their own failures’
(17 February 1996, ‘Schools brief’: 64).
Computable general equilibrium (CGE) models link micro-economic
optimizing behaviour of utility and profit maximization to macro-economic
analysis. They show the effects of policy measures such as environmental
standards or market instruments. Comparative-static models predict
the changes in economic variables from the original equilibrium to the
new one, resulting from micro-economic responses to governmental
policies. Conrad (1999) reviews the methods and applications of
environmental CGE models. CGE models obtain their computability

from using national accounts and input–output statistics (Chapters 6, 8)
for a more or less detailed breakdown of economic activities. They still
suffer from unrealistic assumptions of perfect market conditions and
smooth (mathematical) production and utility functions. Most textbooks
of environmental economics stay with this micro-oriented approach to
dealing with environmental externalities and natural resource depletion.
Natural resource economics is a special branch of conventional
economics. It established the rules for the optimal exploitation of an
exhaustible natural resource like coal or oil. Maximizing the return from
the use of such a resource requires its unit rent (the net price, calculated
as the market price minus the unit extraction cost) to be increased at
the prevailing interest rate. This so-called Hotelling (1931) rule ensures
continuing market clearance for the supply and demand of the resource
at market prices. Up to now, natural resource economics remains a part of
conventional market analysis.
Applying a social discount rate instead of the prevailing interest rate for
the sake of conserving a natural resource for future generations extends
natural resource economics into the non-economic sphere of sustainability
and inter-generational equity (Chapter 5). Solow (1974) presents a
clear and non-mathematical review of narrow resource economics and
broader sustainability analysis of natural resource use. Most textbooks
on environmental economics claim natural resource economics as part of
their subject area (e.g. Tietenberg 2005).
Auty (1993) characterized the failure to turn natural (mineral) wealth
into economic growth and development as the ‘resource curse’. Reasons
for this failure include volatility of resource prices and currency rates,
use of resource rent for consumption rather than investment, and social
conflict and corruption in resource-rich countries.
Under the influence of the international discussion of sustainable
development (Chapter 9), economists expanded natural resource
economics to include broadly defined natural capital and environmental
damage. Optimal and sustainable growth models are the result; they
incorporate environmental damage into a social welfare function and
maximize national welfare under natural capital constraints (Solow
1974; Dasgupta and Mäler 1991, 2000; Arrow et al. 2004). Aware of the
rather unrealistic assumption of perfect market conditions, Arrow et al.
(2003) show that sustainability can replace optimality for modelling the
growth of imperfect economies. They still remain, however, in the realm
of conceptualizing theory. As Nordhaus (2008: 80) succinctly observes
for his own climate model, the results of such models ‘convey a spurious
precision’, but are at least ‘internally consistent’. Munasinghe’s (2002)
reader provides a rare overview of green macro-economics. Undaunted
by the problems of global modelling, UNEP’s (2011b) simulation of
a green economy takes an optimistic view of increasing or restoring
natural capital. A relatively small investment of 2 per cent of global
GDP would not only generate greater global wealth and economic
growth, but also reduce poverty because natural capital services benefit
the poor.
Chapter 3 referred to the power of technological progress to reduce the
input of primary materials from the environment. Such dematerialization
could be the result of a transition to a post-industrial service economy, hailed
at the time by popular magazines as the advent of a permanently growing
new economy; see, for example, Time, 30 May 1983 <http://www.time.
com/time/magazine/article/0,9171,926013-1,00.html> (accessed on 19 June
2011); Newsweek, 4 August 1997 <http://www.newsweek.com/1997/08/03/
the-new-rich.html> (accessed on 19 June 2011). A ‘new growth theory’
explained this optimistic outlook as a matter of driving technological
innovation ‘endogenously’ by a deliberate promotion of knowledge through
research and development, rather than relying on exogenous accidental
discovery (Cortright 2001).
New information and communication technology (ICT) has been a key
player in technological progress. International organizations promote the
new technologies for development by assessing case studies in developing
and transition economies (World Bank 2003a) and by a Global Alliance for
Information and Communication Technologies and Development (United
Nations 2009–2010). The European Union is attempting to attain a ‘digital
revolution’ by 2020 (European Commission, Information Society n.d.).
Recessions in rich countries may now have dampened the enthusiasm for
the new economy. Indeed, ICT lost some of its lustre: high energy inputs,
and short life and use of ICT hardware have somewhat offset undeniable
gains in productivity, dematerialization and detoxification of economic
activities (Elliot 2007).
• What’s wrong with markets? Why can’t they deal with natural resource
depletion, environmental degradation and environmental protection?
• Governments fail, too. Can cost–benefit analysis of their programmes
and projects help?
• Can internalizing environmental externalities bring back optimality in
production and consumption? How?
• Does economic growth improve environmental quality? Check the
validity of the EKC hypothesis.
• Nordhaus’s optimal growth model determines the optimal global
eco-tax for CO2 emissions. Is this the best way to balance climate
change effects with the benefits of economic growth? Can the model
deal with catastrophic events?
• Does green accounting provide better cost data for setting market
instruments than modelled (optimal) cost calculations?
• How should governments use eco-tax revenues: for reducing labour cost,
for environmental protection, or as they see fit (for the common good)?
• Can /will technology ensure the sustainability of our economies?
• Is endowment with natural resources a curse or a blessing?
8 Bridging the gap
Ecological and environmental
economics
• Pessimistic assessments of environmental disaster and optimistic trust

in markets are at the roots of dissent between ecological and environ-
mental economists
• Physical input–output tables and hybrid accounts connect environmen-
tal impacts to economic activity; they do not measure sustainability
• Input–output and general equilibrium models set environmental stand-
ards for economic activities; they could assess short-term sustainability
• Models of optimal sustainable growth clarify the meaning of inter-
generational equity and sustainable welfare; they remain in the realm of
abstract welfare economics
• Linear programming optimizes bounded economic activity; it points
to a common operational theory of ecological and environmental
sustainability
Throughout Parts 1 and 2 we have compared the different views of

ecological and environmental economists. The crude distinction between
eco-centric ecological and anthropocentric environmental economics
is of course a simplification of different schools of thought on greening
economics (Chapter 1). It is, however, real enough to differentiate between
rather pessimistic biophysical assessments of environmentalists and more
optimistic economic analysis of environmental problems. As discussed in
Chapters 3 and 6, different strengths of sustainability capture this disparity
in more operational terms. Ecological economists call for strong sustain-
ability as a way of living within the limits of nature’s carrying capacities. In
contrast, environmental economists claim that weak sustainability of main-
taining the value of produced and natural capital can balance environmental
costs and benefits with economic ones.
Bridging the gap 87
Both schools recognize impacts of economic production and consump-
tion as the causes of environmental deterioration. They differ in their view
of what should be primarily sustained: the environment or the economy.
The question is whether one can replace ‘or’ by ‘and’. In other words, can
we bridge the different approaches to defining, measuring and attaining
ecological and economic sustainability? Is there a way to combine the
findings of ecological and environmental economics in unified analysis
and policy? A two-pronged approach (Figure 8.1) could provide answers
by introducing
• the biophysical indicators of ecological economics into economic

accounts, and
• ecological norms and standards into economic analysis.
Disdain for economic growth appears to be the reason why ecological

economists tend to ignore economic values in their assessments of the state
and trend of the environment. A promising way of introducing economic
activities in these assessments could be to open the black box of the econ-
omy in material flow accounts (Chapter 2). Input–output tables do just this
by presenting inter-industry flows of physical commodities in full consist-
ency with the national accounts.* Environmentally extended physical and
hybrid (monetary–physical) input–output tables can indeed connect eco-
logical and economic data in a common accounting framework.
Environmental Ecological
economics economics
Figure 8.1 B
ridging the gap? A two-pronged approach could introduce physical impact
data into economic accounts, on the one hand, and ecological norms and
limits into environmental economics, on the other hand. Hybrid ( physical–
monetary) accounts and normative economics would be the result.
Physical input–output tables (PIOTs) represent the physical coun-
terpart of supply and use in the monetary national accounts. Extended
versions show natural resource flows into different sectors of the economy
and residual discharges from these sectors into the environment. This
allows environmental source and sink services to be related directly to their
economic uses. Input–output tables are, however, rarely compiled in purely
physical form because of costly data requirements. Table 8.1 shows the one-
shot German PIOT in an aggregate format. The table adds about 50 billion
tons of materials and residuals to the conventional (physical) input–output
table. Nature’s input of primary materials into the economy amounts to 49.6
billion tons, and the economy’s output of residuals into nature 49.1 billion
tons. The difference is accumulated in durable goods and inventories.
The results of these additions are obscure: what are we to make of a
total material flow in the economy of 113 billion tons or a physical GDP of
3.9 billion tons? Note that the physical GDP excludes non-material services,
whose increasing significance characterizes the post-industrial stage of eco-
nomic development. Obviously, the aggregation in tons, not only of apples
and oranges but also of machines, buildings and computers, cannot reflect the
different values of goods and services for human use. Expanding the material
flow accounts to include economic activities in physical terms fails, therefore,
to provide a meaningful evaluation of economic performance and its interac-
tion with the environment. Nonetheless, the revised green accounting system
of the United Nations (Committee of Exports on Environmental Economic
Accounting 2012) appears to focus on these physical flows (Chapter 6).
Relating physical environmental data directly to the monetary economic
indicators of the national accounts might yield better results. The Dutch
National Accounting Matrix including Environmental Accounts (NAMEA)
Table 8.1 Physical input–output table, Germany, 1990 (billion tons)
Output (supply) Input (use)
Intermediate uses Final uses Total

material use
By the economy By the By
(industries) economy nature
(GDP) (residuals)
Industries 7.6 3.6 48.3 59.5

Households 2.8 0.8 3.6
Nature 49.3 0.3 49.6
Total material 59.7 3.9 49.1 112.7
supply
Source: Stahmer et al. (1998: Table 12), modified and aggregated.

Bridging the gap 89
(de Haan and Kee n.d.) is a hybrid input–output table. It maintains the
monetary supply and use accounts and places physical flows of natural
resources and emissions next to the monetary transactions. Figure 8.2 is thus
similar to the PIOT (Table 8.1), except for its white core of conventional
monetary accounting. The figure also explicitly includes transboundary
physical and monetary flows to and from the rest of the world. NAMEA
avoids any changes in the economic national accounts as it ‘maintains a
strict borderline between the economic sphere and the natural environment’
(de Haan and Kee n.d.: 2). The NAMEA accountants see this as strength.
Bordering up the economy, however, thwarts a genuine comparison of eco-
nomic outcomes with environmental impacts, and hence a truly integrative
assessment of ecological and economic sustainability. This may actually be
the intention of the SEEA revision, as most national accountants oppose fully
merging environmental data in national accounts indicators (Chapter 6).
USE Industries Final demand PHYSICAL

(by) 1, 2, ... material
Households Capital Rest of the flows
formation World (natural
SUPPLY and (ROW) resources,
(of) accumula- residuals)
tion
Outputs Interme- Final Capital Exports Emissions

(including diate consump- formation from
imports) consumption industries
tion and
households
Income Value
added, NDP
Rest of the Imports Capital Balance of Imports of

World transfer to payments natural
(ROW) ROW resources
and residuals
PHYSICAL Natural Natural Net Exports of Physical

material flows resource resource accumula- natural balances
(natural inputs, use, tion resources
resources, residuals ‘consump- of materials and
residuals) received tion’ of and residuals
residuals substances
Figure 8.2 S
implified structure of NAMEA. The hybrid input–output system shows the
physical supply and use of natural resources and pollutants (residuals) next to
the monetary accounting indicators of supply and use of goods and services.
The NAMEA is thus an intermediate step only towards integrative envi-
ronmental-economic accounting; it could provide, though, the database for
hybrid models of physical environmental impacts from economic activity.
Source: based on Bartelmus (2004: 49, Table II), with permission from Elsevier.
Physical and hybrid accounts do not build good bridges between
ecological and economic assessments. Less rigid but assumption-laden
models could be more successful. Hybrid models have indeed come up
with policy options that take particular physical environmental targets into
account. Figure 8.3 combines, for illustrative purposes, two versions of a
hybrid input–output model. The original model focused on the environmen-
tal placeholder, CO2 emission, by means of an eco-tax (Meyer 1999). The
newer model takes the success of the European Union’s climate policy for
granted and tests the increase in natural resource productivity (Chapter 3)
as the main environmental policy (Meyer 2005). The eco-tax model
slowed GDP growth and reduced CO2 emission, whereas dematerialization
is expected to bring about economic ‘vitalization’ (Meyer 2005: 20) and
stronger GDP growth.
Computable general equilibrium (CGE) models also combine physical
environmental impacts with more or less disaggregated monetary input–
output tables. However, CGE models determine equilibrium prices as a
result of optimal behaviour by economic agents (Chapter 7). Note that the
above input–output model just added environmental costs as ‘mark-ups’ to
existing price levels. CGE models typically define environmental policy
in terms of emission standards that should not be exceeded. Economists
Economy
CO2 emissions Natural

Intermediate resources
consumption
Final demand
Eco-tax Value added Dematerialization
Cost Cost
increase Prices decrease
Figure 8.3 H
ybrid input–output model. The German Panta Rhei model (Meyer 1999,
2005) uses monetary and physical input–output data and national accounts
indicators. This radically reduced sketch illustrates the introduction of
physical CO2 emissions from, and natural resource use by, industries and
households. Increased cost of an emission-related tax and decreased cost
of natural-resource-saving dematerialization change relative prices and the
structure and level of the economy.
Bridging the gap 91
dispute such mixing of observable real-world data with judgemental
norms (Chapter 9). However, the main drawbacks of CGE models are their
unrealistic assumptions of competitive markets and mathematical produc-
tion, consumption and utility functions that maximize welfare in a general
equilibrium of the economy. Moreover, they are basically static in nature
and do not normally show the transition from one equilibrium to another
(future or desirable) one.
Models of optimal economic growth seek to overcome the stasis
and the relatively short outlook of input–output and general equilibrium
models. However, they suffer from similarly unrealistic assumptions about
welfare maximization and its dynamics. One can see, on the other hand,
their power of conceptualizing sustainable welfare and its determinants.
Chapter 7 showed that environmental economists discount the cost of future
environmental impacts, whereas ecological economists favour low or zero
discounting for the sake of inter-generational equity. Adjusting the lever of
the discount rate could be one way to find a compromise between caring
about future generations and seeking prosperity through economic growth.
A more realistic and transparent approach is to combine input–output
analysis – based on accounting and input–output statistics – with long-term
environmental capacities that pose limits to economic growth. The result
would be a clearly defined framework, within which economic activities
could play out and could be assessed in terms of quantifiable input–output
relationships. This is the approach of linear programming.* Figure 8.4
illustrates, for a two-commodity economy, how ecological limits and social
requirements (for meeting basic needs) can be set for economic activities.
Inequalities, rather than equations, specify (1) environmental limits of maxi-
mum use (‘no more than’) of natural resources and environmental sinks (as
permissible pollution), and (2) minimum consumption (‘at least as much as’)
of goods and services to meet standards of living. Linear programming thus
determines a feasibility space, where economic activities can be conducted
within the limits of carrying capacities of a nation or region (Chapter 3).
Linear programming introduces physical (carrying capacity) constraints
for economic activities; it also combines these limits with economic valu-
ation and optimization by weighting (multiplying) physical outputs with
monetary unit values in the maximizing function Z* of Figure 8.4.* The
result is a transparent connection of ecological sustainability with the
economic analysis of maximum value added and its sum total, net domestic
product. Dynamic versions of the model can introduce capital formation by
reserving some output for future use. Connecting the – limited – availabil-
ity of produced and natural capital with optimal capital formation allows
ecological sustainability of environmental constraints to be combined with
economic sustainability of capital maintenance. The bounded optimality anal-
ysis of dynamic linear (and non-linear) programming thus shows us a way
X2 (shelter)
c1
xr
FEASIBILITY c2
SPACE
xˆ2
N Z*
xp
xˆ1 X1 (food)
Figure 8.4 L
inear programming of ecologically sustainable and optimal economic
activities. Food and shelter production and consumption represent the
economy in this illustrative presentation. Linear inequalities of minimum
requirements for food c̄1 and shelter c̄2 , and standards for maximum use
of a natural resource x̄r and maximum emission of a pollutant x̄p define
the (bold-bordered) feasibility space for economic outputs x1 and x2. x̂1
and x̂2 (at point N) are the minimum feasible outputs that meet minimum
standards of living represented by c̄1 and c̄2 constraints. Z* (dashed line)
represents the highest net value for the feasible (ecologically sustain-
able) combinations of food and shelter at the tangent point I.
Source: Bartelmus (2008), Figure 12.3, based on Bartelmus (1979), with kind permission from
Springer Science+Business Media B.V.
towards reconciling ecological and environmental economics via their

sustainability notions.
Combining the two sustainability concepts still requires consensus on
the nature and level of environmental constraints. The divisive devil is
in the specification of the necessary constraints. Ecological economists
would like to curb economic activity to a sustainable physical scale
(Chapter 4). Environmental economists would let human preferences weigh
the significance and cost of environmental hazards against the benefits
of economic production and consumption (Chapter 7). Possibly for these
reasons, the linear programming approach to environment–economy inter-
action has so far been ignored in nation-wide sustainability analysis and
policy-making.
Bridging the gap 93
We may have found a bridge for unifying ecological and environmental
economics. But will environmental and ecological economists cross the
bridge and perhaps meet halfway? With few exceptions, both camps seem
to ignore each other. In fact, a frequently raised criticism of stressing the
polarization of environmental and ecological economics is that it overstates
the antagonism between the two camps. Belittling an obvious disagreement
is unfortunate, though. It prevents the reciprocal evaluation of normative
assessments of biophysical data, on the one hand, and of more positiv-
ist environmental-economic analyses, on the other hand. Such evaluation
is not meant to stir up antagonism. Raising awareness of divisive issues
should foster dialogue rather than dissent between environmentalists and
economists.
Want to know more?

Nobel Prize laureate Wassily Leontief (1951) pioneered input–output
analysis. Input–output analysis explains the structure of the economy
as a physical flow system, in which each industry may provide inputs
into any other industry. Simple matrix algebra can then determine how
much of the outputs of other (antecedent) industries is needed to produce
a particular product. Leontief (1970) also introduced pollution and
pollution control into his model. Underlying such analysis is an input–
output table in physical or monetary units of measurement. Monetizing
the input–output tables permits presenting inter-industry flows as an
integral part of the supply and use accounts of the national accounts
(European Commission et al. 2009). Hoekstra and van den Bergh (2006)
describe different attempts at computing physical input–output tables
by European countries. The input–output analyses of Murray and Wood
(2010) also stay in the physical realm of ecological economics: they
present case studies of the direct and indirect discharge of wastes and
pollutants in production. Despite their claim to offer ‘the sustainability
practitioner’s guide’, the case studies do not assess the sustainability of
economic activity.
Linear programming of economic activities – hence sometimes
called activity analysis – opens the input–output system to optimal
behaviour under constraints of maximum productive and environmental
capacities and minimum consumption requirements. The model
determines optimality as the highest monetary value of feasible net output
combinations, weighted by value added (v) per unit of output. The tangent
value Z* (for different values of Z = v1 x1 + v2 x2) in Figure 8.4 represents
the maximum feasible and ‘greened’ net domestic product of an economy
operating under environmental (and other) constraints. Refinements of the
model allow for non-linear substitution of production factors in dynamic
models. Dorfman et al. (1958) is still one of the best introductions to the
economic analysis of linear programming. Bartelmus (1979) introduced
United Nations concepts of inner (social) and outer (environmental) limits
into the linear programming framework. So far, however, most empirical
applications of linear programming have focused on local ecosystems
and corporate management rather than national policies.

• Is dissent between ecological and environmental economics
exaggerated?
• Can linking environmental impact data to economic activities over-
come this dissent?
• What can hybrid models do for comparing and combining economic
and ecological sustainability?
• How promising is linear programming for combining environmental
limits and economic activities?
• Is choosing a relatively low discount rate for future environmental
impacts a good compromise between equity for future generations and
equity within the present generation?
• Do we need a unifying theory of eco-nomics (Chapter 1) with a common
sustainability concept?
Part 3
Sustainable development
What else do we need?
9 A cure-all paradigm?
• Sustainable development is an alluring but hazy paradigm

• Like development, sustainable development seeks to improve the
living conditions of people, but with a focus on the social, economic and
environmental needs of current and future generations
• Ecological economists embrace the normative paradigm; environmen-
tal economists tend to treat sustainable development as a metaphor for
social progress with environmental conservation
• Indices of sustainable development rank countries in terms of indicator
averages; they do not define and measure sustainable development
• The globalization debate revived sustainable development; it is not
clear, however, whether globalization helps or hinders sustainable
development
Sustainable development is like the Holy Grail: it appeals to everyone, many

believe in its powers, but no one has found it yet. Governments subscribe
to sustainable development in Earth Summits (Chapter 10) and at home.
The United Nations includes it in its Millennium Development Goals.* The
European Union made sustainable development part of its Constitution, as
did the hardly environment-minded World Trade Organization (WTO). Few
publications on environment and/or development can resist summoning up
the concept in support of their arguments. In reality, economic policy con-
tinues to focus on economic growth and employment, with environmental
agencies on the sidelines (Figure 9.1).
So what makes sustainable development so endearing and elusive at the
same time? The answer lies in the cornucopian concept of development.
Broadly, socio-economic development seeks to improve the living conditions
and well-being of people. Obviously such a definition applies to countries at
any development stage, including those that may count themselves among
98 Sustainable development
SUSTAINABLE DEVELOPMENT
SUSTAINABLE ECONOMIC
GROWTH
Economic growth with some

environmental protection
Figure 9.1 S
ustainable development – in reductionist mode? Under the banner of
sustainable development most countries focus on economic perform-
ance and growth: they equate development with economic growth and
sustainability with environmental protection.
the developed ones. Attempts at substantiating development refer to a large

variety of human needs and less tangible aspirations (Max-Neef et al. 1989).
Deficiencies in meeting even ‘basic needs’ (International Labour Organization
1977) characterize the situation in developing countries. Figure 9.2
indicates – in terms of comparative rankings by the Human Development
1. Norway
9. Sweden
8. Canada 65. Russia
5. Ireland 6. Liechtenstein
7. Netherlands 10. Germany
4. USA 89. China
160. Mali 161. BurkinaFaso

162. Liberia 163. Chad
164. Guinea-Bissau
165. Mozambique 167. Niger
168. DR Congo
169. Zimbabwe 2. Australia
3. New
Zealand
Figure 9.2 L
east and most developed countries according to the Human Develop-
ment Index 2010. The index ranks countries by an average of per-capita
gross national income, literacy and life expectancy. Note that in terms
of GNI per capita Liechtenstein would come out first; on the other hand,
GNI per capita would lower New Zealand and Ireland to rank 33 and 25,
respectively. The ten least developed countries are all in Africa.
A cure-all paradigm? 99
Index (UNDP 2010) – the low development situation in Africa and high
development of North America, Europe and Oceania.
Frustration with lost Development Decades of International Development
Strategies* and conspicuous environmental decline prompted the United
Nations to establish a World Commission on Environment and Development
(WCED). The objective was to investigate the reasons for the failures of
environmental and developmental policies, and to suggest solutions. The
Commission called for sustainable development* as the concept for
integrating fragmented policies of specialized departments and agencies.
Policy integration would deal more effectively with cross-cutting ‘spill-
over’ effects of programmes and projects on poverty and environment.
Sustainable development thus adds a further ‘pillar’ (United Nations 2003)
of environmental protection to those of social justice and economic growth,
commonly identified with economic development; institution building is
also often identified as a fourth pillar (Figure 9.3). The pillar metaphor seems
to come close to the support function of capital in sustainable economic
Figure 9.3 T
he four pillars of sustainable development. Interacting economic, envi-
ronmental, social and institutional policies need to be integrated or at
least coordinated. According to the World Commission on Environment
and Development, governmental departments and agencies tend to act
independently, which caused the failure of both environmental and
developmental strategies.
growth (Chapter 6). Others prefer to speak of three or four ‘dimensions’
of sustainable development, stressing the need for integrating development
goals (e.g. UNESCO n.d.).
The World Commission also advanced the popular definition of sus-
tainable development as ‘development that meets the needs of the present
without compromising the ability of future generations to meet their own
needs’ (WCED 1987: 43). Meeting the needs of future generations is a mat-
ter of equity in the inter-generational distribution of income and produced
and natural wealth. Inter-generational equity is to make sure that future gen-
erations will enjoy at least the same level of prosperity and environmental
amenities as the present generation. For the present generation, intra- and
international equity refers to the social dimension of development. The
objective is to reduce the gap in wealth and welfare within countries and
between rich and poor countries. One can assume that human needs include
these and all other development goals.
The wide range of needs turns the paradigm into an alluring but hazy
aspiration: everyone can subscribe to it without risk of being held account-
able for its success or failure. To industry, sustainable development might
offer opportunities for investing in environmental protection; governments
adopt it to pacify environmentalist objections to economic growth; and civil
society uses it to argue against globalization. With sustainable development
‘all [is] in harmony’ (WCED 1987: 46).
Such harmony augurs well for reconciling environmentalist and
economic worldviews, where measurement and modelling seem to fail
(Chapter 8). Ecological economics is characterized by moralistic calls for
frugality, environmental responsibility and social justice (Chapter 4). It is
therefore not surprising that ecological economists co-opted a paradigm that
is ‘based on social values and ethical norms’ (Faucheux 2001: 1763) and
caters to ‘qualitative development’ rather than quantitative economic growth
(Daly and Farley 2004: 6). ‘Co-evolutionary economics’ represents an insti-
tutional view of ecological economics (Söderbaum 1999; Faucheux 2001): it
uses the ecological notion of evolution to address changes in values and insti-
tutions necessary for sustaining environment and development in the long
term. Institutional reform is expected to sustain all pillars of development.
Perhaps less normative, but equally broad and vague, is the utility-based
notion of welfare. Both environmentalists and economists use welfare to
denote positive effects of well-being from ecosystem services, the con-
sumption of goods and services and other social and cultural amenities.
Welfare maximization and development objectives are thus equivalent
at a higher metaphysical level – as compared to the more down-to-earth
links between environmental limits and outputs of economic activities
(Chapters 4, 8). Dissent sets in when evaluating the welfare effects and
setting priorities for environmental and/or economic policies (Figure 9.4)
Mainstream economists see the mixing of ecological and social norms and
facts as an obstruction of scientific analysis. In their view, social values
and norms are institutional pre-conditions that should not blur scientific
(fact-based) economics (Samuelson and Nordhaus 1992; Beckerman 1994).
Ecological economists Krall and Klitgaard (2007: 185, 190) counter that
‘ecological economics must extricate itself from [its] neoclassical roots’
since it ‘is better served by institutional economics and heterodox political
economy’.
Environmental economists are less categorical about combining environ-
mental standards and economic analysis. They are still uneasy, though, about
dealing with the popular paradigm of sustainable development. Their text-
books might devote a chapter or two to sustainable development, treating the
subject as a matter of strong versus weak sustainability (e.g. Turner et al.
1993; Tietenberg 2005; Hanley et al. 2007; see also Chapters 3 and 6 above).
Adopting weak economic sustainability allows sustainable development to
be considered as economic growth, since all types of capital (or pillars) are
Figure 9.4 H
armony in the clouds – dissent on earth. Sustainable development
promises abundance and is vague enough to be generally accepted.
Environmentalists and economists fail to agree, though, on setting pri-
orities for and implementing policies of environmental protection and
economic growth.
assumed to be substitutable. Ecological economists dispute this assump-
tion; they argue that irreplaceable critical natural capital might bring down
economic growth and welfare. Environmental economists might not deny the
existence of ‘complementary’ (non-substitutable) natural capital but would
leave its preservation to the conservationism of environmentalists. Similarly,
they tend to leave other social, cultural or political development concerns to
separate disciplines of institutional and development economics.
Ecological economists seek to fill the normative concept with substance
by selecting representative indicators for the different pillars of sustainable
development. Particular indicators can warn us about positive or negative
trends in the fields they represent. Their linking to targets and standards
would make the vision of sustainable development more visible. However,
such linkage makes the vision highly judgemental. Chapter 2 referred to some
of the international indicator frameworks for assessing sustainable develop-
ment. The frameworks may bring some order to lengthy indicator lists but
do not remove the problems of indicator selection and aggregation. Despite
these problems, popular indices of sustainable development* claim to:
• show ‘progress… toward sustainable development’ (Sustainable

Development Index: Nováček and Mederly 2002: 50);
• assess the sustainability of society and its ‘good life’ in terms of high
levels of ‘human and ecosystem well-being’ (Well-Being Index:
Prescott-Allen 2001: 1);
• gauge the ‘prospects for long-term environmental sustainability’
(Environmental Sustainability Index: Yale Center for Environmental
Law and Policy and Center for International Earth Science Information
Network 1997–2006: 1).
All these indices can do is to compare the ranks of countries. The reason
is that indicator averages cannot define the levels of overall sustainability
and development. Figure 9.5 shows that rankings may vary considerably
because of differences in scope, coverage and indicator selection. All in all,
indicators and indices offer neither a clear definition of sustainable develop-
ment, nor a blueprint for implementation.
The globalization debate and demonstrations at ministerial meetings of
the WTO in Seattle, Cancún and Hong Kong revived sustainable devel-
opment as an alternative to globalizing capitalism. More than any other
institution, the WTO embodies such capitalism through its promotion of
free trade in competitive international markets. Negative social and envi-
ronmental effects of globalization make the WTO something of a red rag
for environmentalists. This is despite WTO’s constitutional subscription to
sustainable development.*
140 KWT
SL
120 IND
PRC
100 ANG
80 J
RU
ESI
60
D
USA
40
BR
20 AUS
N FIN
0
0 20 40 60 80 100 120 140
SDI
Figure 9.5 S
ustainable development ranking of selected countries. On a scale of
1 to 131 (for the countries included in the ranking), the Sustainable
Development Index (SDI) and the more forward-looking Environmental
Sustainability Index (ESI) show diverging results. Exceptions are top-
ranked countries Norway, Finland and Australia, and low-ranked Sierra
Leone. Angola and Kuwait are lowest (at 131) according to the SDI
and ESI, respectively. Country codes: ANG – Angola, AUS – Australia,
BR – Brazil, D – Germany, FIN – Finland, IND – India, J – Japan,
KWT – Kuwait, PRC – China, RU – Russia, SL – Sierra Leone.
Source: Bartelmus (2008, Table 5.4), selected countries.
Globalization is not new. Proselytizing colonialism spread Western

faith and civilization, established the political dominance of European
countries, and supported their economic growth and industrialization
(Figure 9.6). What changed are the speed and nature of the interaction of
countries and their trade. It is not clear whether globalization helps or hin-
ders sustainable development.* For economists, trade liberalization makes
use of the comparative advantages of countries in knowledge and produced
and natural capital endowment. The resulting acceleration of economic
growth improves standards of living and environmental protection in all
nations. Globalization also helps, in their view, to spread the message of
sustainable development and corresponding social and environmental
standards. Environmentalists believe that the social costs of growth trig-
gered by foreign trade drown out comparative advantage; they also fear that
Figure 9.6 G
lobalization is not new. In the nineteenth and early twentieth century,
windjammers and clippers crossed the oceans to bring natural resources
and exotic products to European countries.
unbridled competition from trade liberalization causes the abandonment of

social, cultural and environmental achievements.
Sustainable development may take the high road of reminding politicians
of non-material social goals, and in particular the inequitable treatment of
the current and future generations. But can it handle the low ground of prac-
tical environmental and socio-economic policy-making?
Want to know more?

Since the 1960s, the United Nations has sought to improve the standards
of living of developing countries through a number of International
Development Strategies, presented and monitored in Development
Decades. However, despite a return to economic growth (with added
social and environmental objectives) in the fourth and last decade,
the strategies failed to reduce the gap between rich and poor countries
(Bartelmus 1994). The Millennium Development Goals (MDG)
of the United Nations (2010b) now set targets for old and a few new
(AIDS, globalization) development concerns. The goals include poverty,
education, gender equality, health, environmental sustainability, and
global partnership for development. In 2010 a UN Summit, ‘expressing
deep concern’ that progress ‘falls short of what is needed’ (United Nations
2010a: para. 1), issued a new ‘action agenda’ to meet the goals by their
2015 deadline. However, the MDG seem to skirt economic growth and
look more like an agenda for social development. It remains to be seen
whether such a narrow development concept can be more successful than
the more comprehensive strategies of the Development Decades.
Sustainable development is not a new concept. The eighteenth-
century Saxon forestry and mining official von Carlowitz (1713) might
have invented sustainability. Timber scarcity in Europe made him seek
‘equality’ between reforestation/forest growth and harvesting of timber
so as to ensure a ‘continuous, persistent and sustained utilization’ (von
Carlowitz 1713: 105–6; author’s translation). Over two and a half
centuries later, the World Conservation Strategy called for ‘sustainable
development’ by means of conserving our living resources (IUCN
et al. 1980). Essentially the Strategy caters to ecological principles of
maintaining the carrying capacities of ecosystems (Chapter 3). To link
carrying capacity and resilience of nature to development, and hence its
sustainability, ecological economists suggest safe minimum standards
(Chapter 4) that could curb economic activity (Opschoor and van der
Straaten 1993; Rennings et al. 1999; Ekins et al. 2003). The Earth
Summits of the United Nations (Chapter 10) appear to adopt the broad
definition of the World Commission on Environment and Development
(WCED 1987). The 2002 Summit called for ‘the integration of the three
components of sustainable development – economic development, social
development and environmental protection – as interdependent and
mutually reinforcing pillars’ (United Nations 2003: 12).
Development indices are mostly averages of standardized (to obtain
a common scale) indicators. Normally, they give equal weight to the
underlying indicators, irrespective of their role and significance in
development:
• The Sustainable Development Index (SDI) averages 58 statistical

measures in economic, environmental, social, demographic and
political areas (Nováček and Mederly 2002).
• The Human Development Index (HDI) is an average of life expect-
ancy, education (mean and expected years of schooling) and gross
national income per capita (UNDP 2010).
• The Well-Being Index is an average of 81 indicators of human and
ecosystem well-being; the assumption is that sustainable development
is a combination of the two well-being categories of human needs
satisfaction and life support of ecosystems (Prescott-Allen 2001).
• The Environmental Sustainability Index (ESI) calculates the
mean of 68 measures of environmental stress, health effects, and
the capacity to attain sustainable development (Yale Center for
Environmental Law and Policy and Center for International Earth
Science Information Network 1997–2006).
A comparison of the HDI, which excludes environmental concerns,

with the SDI reveals high correlation of the indices (Bartelmus 2008).
Reviewing eleven indices, Böhringer and Jochem (2007: 1) find them all
‘useless if not misleading with respect to concrete policy advice’.
The World Trade Organization (WTO) was designed to foster
trade liberalization. The Marrakesh Agreement establishing the WTO
subscribes to ‘sustainable development, seeking both to protect and
preserve the environment and to enhance the means for doing so’ (WTO
n.d.(c)). Various WTO articles also specify exemptions from free trade
rules. In particular, GATT Article 20, carried forward by the WTO, calls
for ‘protecting human, animal and plant life or health’. Environmentalists
still complain about the lack of transparency and accountability of the
WTO. Speth (2003) criticizes the narrow focus of the WTO on the effects
of environmental policy on trade to the neglect of the effects of trade on
the environment. The WTO website provides detailed descriptions of its
environmental policy (from the WTO’s point of view) (WTO n.d.(b)). The
site also describes the current state of the – some will say ‘moribund’ –
Doha negotiations on environment and development (WTO n.d.(a)).
Globalization can be defined as a process of rapidly increasing
integration of lifestyles, markets and the production of goods and services
across national boundaries. It has been facilitated by new information and
transportation technologies and trade liberalization. Environmentalists

stress the negative effects of globalization, and especially a power shift
from governments to transnational corporations (Daly 1999; Mander
2003). Economists argue ‘in defense’ of corporations and globalization
(Bhagwati 2002, 2004). Rodrik (1997) gives a concise and more neutral
assessment of the effects of globalization. International organizations see
information and communication technologies as a key driver of global
development (Chapter 7).

• What are the goals of sustainable development? Are they happiness and
human welfare (as stipulated by the US Declaration of Independence
and its Constitution)? Or meeting the human needs of the popular
WCED definition of sustainable development?
• The 2010 summit conference on the Millennium Development Goals
saw progress in some goals, but mostly failure in attaining environ-
mental sustainability. Do we have a real commitment to meet the goals
by 2015?
• Can we equate economic development with economic growth, and
sustainability with environmental protection? Do governments do so?
• What do the indicators and indices of sustainable development tell us?
Do they give us an operational definition of sustainable development?
• Globalization is blamed for inequities in the international and inter-
generational distribution of environmental and economic goods and
services. Do you agree?
• Should ‘greens love trade’, as argued by The Economist (9 October
1999)?
• Why do ecological economists embrace sustainable development?
• One reviewer of this book found the chapters on sustainable develop-
ment rather vague. Do you agree? Whose fault is it – the author’s or the
paradigm’s inherent opacity?
10 What should we
do about it?
• Local eco-development has had some success but cannot replace national
policies of sustainable development
• Governments subscribe to sustainable development but focus on
economic growth in practice
• Earth Summits and international conventions show little clout in global
governance for sustainable development
• Deglobalization seeks to mitigate the negative effects of globalization
• Greening the World Trade Organization could reduce environmental
impacts of trade liberalization
• Has sustainable development run its course? Probably, as far as concrete
policy advice is concerned
Sustainable development calls for integrated policies to deal with trade-

offs and synergisms among its objectives. For example, farming bio-fuels
may revive agrarian economies and reduce the use of fossil fuels and their
emissions; it could also impair food security by crowding out food crops.
One can hardly take issue with considering all pillars of sustainable devel-
opment, especially when the paradigm remains in the lofty heights of
‘transdisciplinary’ philosophy (e.g. Lawn 2007: 3). Dissent sets in, however,
when the paradigm faces the priorities and policies of the different disci-
plines behind its pillars. As discussed, opposing worldviews about the role
and significance of nature for human welfare are the reason for the polari-
zation of environmentalists and economists (Chapters 1, 8, 9). Reaching
consensus depends, however, not only on interdisciplinary disputes but also
on where decisions are taken. Figure 10.1 raises the question whether first
responses to environmental problems should be local, national or global.
At the local – community – level, the closeness of people to each other
and nature could facilitate agreement on social, cultural, ecological and
Tackling sustainable development 109
Figure 10.1 T
hink globally and act locally? Why not the other way round? Thinking
about and assessing local impacts in countries could trigger global
action. The popular slogan is probably moot since we need assessment
and action at all levels.
economic conditions and their management. Agrarian communities, in

particular, are tied to, and more knowledgeable about, the rhythm and use of
nature than policy-makers in distant capitals. This would make the case for
applying the resilience and carrying capacity concepts of ecological sustain-
ability at the local level (Chapter 2). And indeed, in the 1970s, the United
Nations Environment Programme launched eco-development as local-level
development, which ‘respect[s] the natural ecosystems and local sociocul-
tural patterns’ (UNEP 1975). Later case studies focused on the participation
of the local population, unconventional eco-techniques and environmental
education (Sachs 1976, 1980). Figure 10.2 shows some examples of tradi-
tional and novel technologies that have successfully been applied in local
development.
Eco-development sank into oblivion until the Rio Earth Summit revived
parts of it under its local Agenda 21 programmes (United Nations 1994).
Rice terraces, Philippines Fish farming, Madagascar Ethanol fuel, Brazil

keralaarticles.com/.../ www.proparco.fr/... / Mariordo Mario Roberto Duran Orti
banau-rice-terraces.jpg Aqualma.jpg
Drip irrigation, New Mexico Traditional housing, Lesotho Traditional medicine, China
http://photogallery. Nicholas DeVore— User: Vbergera
nrcs.usda.gov/Index.asp Stone/Getty Images
Figure 10.2 E
co-techniques: at the heart of eco-development as advanced by
the United Nations Environment Programme. They include diverse
approaches to ecosystem management such as biological pest control,
aquaculture, renewable energy sources, eco-dwelling and traditional
medicine.
Local governmental programmes and grassroots movements met with lim-

ited success, though, due to lack of funds and resistance from powerful
elites and central government.* To date, there is no surge of local initiatives,
as some opponents of globalization would have it (Mander 2001).
So what can we expect from national policies, which face a much greater
variety of opinions and preferences than close-knit agrarian communities?
Figure 10.3 reveals that even the environment-friendly Dutch rank environ-
mental issues below other high-priority social concerns. Note also that for
the first time in the history of Gallup polls recession-shocked US Americans
gave (in March 2009) higher priority to economic growth than to environ-
mental protection (Newport 2009).
The question is to what extent volatile public opinion does and should
influence governmental priorities and policies. Germany is often seen as a
role model for sustainable development – at least for its efforts on climate
change and renewable energy. The government’s 2008 progress report For
a Sustainable Germany (Federal Government 2008) elevated sustainable
development from an assessment by an environmental agency to a guide-
line for the whole government under the direct patronage of the chancellor.
Non-governmental organizations produced their own sustainability report
Average score
(4 ( sio ar
(5 u Hu -N
(1 ( ) W alt rig r
D ) D er ar ts
el ink llu N
co ( g c wa n
m 13 ou ter
ist Cri ries
7) (1 ibut e-N
Bi ) E (18 ate iter N

iv no Oz ha y
(4 (3 ity/ c gr e ho e
9) 6) de ow le
af ir res -N
co llut tion
4) (6 esti n-N
rt Sp -N
cu N
re
(7 ) He an nge
er m on ng
in g io
od co ) c ac
2) 10 at h c h
en /W
ev r po e-
im L -
d rt-
ltu
Cl 6) ion
Tr A fo th
A 1) on
) H 3) ns
op in t
e d ) nt
r m
fic po ta
ng io
an o
) P sm
(2 rori
m
r
s i
) Te
(1
(6
(1
In
1) 1
5)
(3 (2
(1
Social issuesa
Figure 10.3 P
riorities for sustainable development, the Netherlands. A sample sur-
vey by the Dutch environmental authorities measured the average score
that citizens gave to 64 topics of a social agenda for sustainability.
Note the relatively low ranking of most environmental concerns.
Climate change issues come in at rank 17, comparable to the rating of
economic growth (21). Are environmentalists and economists out of
step with society’s priorities?
Source: Netherlands Environmental Assessment Agency (2007), with permission from the
Netherlands Environment Assessment Agency.
Note: aWorld-wide concern, except where marked ‘N’ – for the Netherlands only.
at the same time. Their rejection of the government’s continuing focus

on sustainable economic growth* does not augur well for public–private
partnership, promoted by the World Summit on Sustainable Development
(United Nations 2003). In fact, such alliance of governments and unelected
groups of corporations, trade unions and civil society could be seen as
shirking governmental responsibility for long-term socio-economic and
environmental policy.
Poverty in developing countries and cross-border and global environ-
mental impacts justify shifting some responsibility for implementing
sustainable development to international organizations. As the German
government puts it: ‘The goals of sustainability cannot be achieved through
national efforts alone’ (Federal Government 2008: 203). The real motive of
showing ‘global responsibility’ (Federal Government 2008: 162) might be
fear of surging immigration and conflicts about access to natural resources.
Global governance for sustainable development is anaemic, though. The
Earth Summits in Stockholm and Rio de Janeiro were a good start, but the
latest summit in Johannesburg did not live up to expectations. It remains to
be seen whether the forthcoming Rio+20 summit will achieve its objectives
of renewed political commitment for sustainable development.*
A small secretariat serves the annual sessions of the United Nations
Commission on Sustainable Development. The Commission was established
in order to follow up on the 1992 Rio Summit’s Action Plan, Agenda 21
(Figure 10.4); it also provides ‘policy guidance’ on the Johannesburg
Summit’s Plan of Implementation (of Agenda 21). Leaving the global imple-
mentation of sustainable development to a relatively weak international organ
indicates that a reductionist mode (Figure 9.1) prevails also at the interna-
tional level. Strengthening the United Nations Environment Programme and
Social and economic dimensions

- Accelerated sustain able development
- Poverty
- Consumption patterns Means of
- Population implemen-
- Health tation
- Human settlements
- Integrated decision-making Finance
Technology
Science
Environmental concerns
Education,
- Atmosphere - Land awareness,
- Deforestation - Fragile ecosystems training
- Sustainable agriculture - Biodiversity
- Bio technology - Oceans Capacity
- Fresh water - Wastes building,
technical
cooperation
Major groups Institutions
- Children and youth - Indigenous people Legislation

- Non-governmental - Local authorities
organizations - Business Information
- Workers - Farmers
- Scientific community
Figure 10.4 A
genda 21. The Rio Summit’s programme of action for sustainable
development calls for the integration of environment and development
in its first block of social and economic dimensions. Environmental
concerns cover the strategies for environmental protection and conser-
vation. Public participation and global partnership are the goals for the
major groups of civil society. The means of implementation comprise
the policy instruments discussed in Chapter 7.
Source: Bartelmus (1994: 146, Figure 6.1), with permission from Taylor & Francis.
its small environmental fund of about US$170 million has been the mantra of
UNEP’s Governing Council. Some call, therefore, for a ‘World Environment
Organization’ (Simonis 2005) with similar powers of monitoring, arbitration
and sanctions as the World Trade Organization.
Globalization has generated interdependencies of economy, environ-
ment, culture and social justice across borders. Lack of data and uncertainty
about the future of globalization and its impacts prevent a conclusive
assessment of the sustainability effects of globalization (Chapter 9). The
recent financial crisis of industrialized countries might slow globalization
or change its direction towards increased South–South trading and coop-
eration. Also, European socially restrained capitalism now looks like a
better model for trade and development than American free-for-all capital-
ism. Still, in one form or other we can expect globalization to continue.
Depending on whether one sees globalization as inevitable or as the result
of the unfettered greed of transnational corporations one would take radi-
cally different action:
• Most environmentalists consider globalization as reversible; they

would therefore counter globalization by local-level development and
by reining in or even dismantling the World Trade Organization.
• Economists see the positive effects of globalization-triggered economic
growth; their objective is to change only those features of globalization
that generate the worst side effects.
Localization is the most radical proposal for undoing globalization. To

empower local government and non-governmental institutions is to coun-
teract and ultimately replace globalization by a ‘new set of international
agreements that operate from an entirely different noncorporate hierarchy
of values’ (Mander 2003: 128). Effective local decision-making would,
however, require a highly unlikely transfer of central powers to local
institutions. Non-governmental organizations also lack democratic
legitimization for implementing national policy concerns. Moreover, deglo-
balization could set off protectionist trade policies that could decrease
economic growth and standards of living in many countries (Figure 10.5).
For environmentalists this is not necessarily an unwelcome effect if it
benefits the environmental cause.
Curbing the power of or changing the rules governing globalization’s
protagonist, the World Trade Organization (Chapter 9), could change the
nature of globalization without rejecting it. Suggestions range from waiving
WTO trade rules for environmental protection to participation of environ-
mental organizations in WTO boards and conferences. Such greening of the
WTO might, however, invite protectionist trade restrictions under the cloak
Figure 10.5 D
eglobalization. Reintroducing protectionist tariffs and trade control at
national borders could restrain economic growth, as well as its environ-
mental impacts. It could also decrease standards of living.
of environmental protection. A more balanced approach would be to create

countervailing environmental power by strengthening international organi-
zations, notably the United Nations Environment Programme. Another
option could give more bite to multilateral environmental agreements
(MEAs) such as those dealing with trade in endangered species, hazardous
wastes or ozone-depleting substances. It remains to be seen whether the
sluggish Doha negotiations (Chapter 9) will come to some agreement on
WTO and MEA rules.
The international community seems to have settled at present for solicit-
ing the goodwill of global governmental and non-governmental players.
The idea is to foster social and environmental responsibility and partner-
ship in a Global Compact of stake- and shareholders (Figure 10.6).* The
question is whether international proclamations will remain mostly rheto-
ric. Note that the repeatedly modified Development Decades returned in
the end to economic growth as initially advocated, and the international
commitment to the Millennium Development Goals remains questionable
(Chapter 9).
Figure 10.6 Global Compact: ideal, strategy or rhetoric?
Measurement problems, normative features, and lack of a common theory

and policy throw sustainable development into question. Its advocates fail
to explain why all social concerns and policies should be pressed into one
ill-defined notion and an unwieldy policy framework. Such compression
might actually obscure important issues and objectives, encourage inaction
and open the door to hidden agendas. Nonetheless, ecological economists
and like-minded environmentalists have attempted to upgrade sustainable
development. A new field of ‘sustainability science’ should address the
‘interactions between nature and society’ (Kates et al. 2001: 641). These
attempts are not convincing. Broad calls for networking, fund raising and
advocacy look more like an activist agenda pursuing a lofty ideal than a new
scientific approach to sustaining environment and development.
Integrative assessments and policies should probably focus on what can
be reasonably well defined, measured and compared. We saw that this is the
case for the economic (and to some extent also ecological) sustainability
of economic performance and growth (Chapters 4, 7 and 8). Fact-based
sustainability economics and its operational economic sustainability concept
(Chapter 6) come closer to a ‘science’ than sustainable development, at least
inasmuch as one can consider economics as a science. Ecological economics
does handle issues of natural sciences, notably of ecology, but its sustain-
ability concepts fail to adequately integrate economic activity (Chapters 2
and 8). Most social, cultural or political concerns are difficult to quantify
and compare; they need to be left to the national and international agencies
designed for their implementation, rather than being mixed up under an
opaque paradigm. Interdepartmental coordination and cooperation should
handle, at least for now, the trade-offs and synergisms of economic-envi-
ronmental with other societal objectives.
Sustainable development still holds considerable social and environ-
mental goodwill. It also draws attention to prerequisites for economic
growth and development such as peace, security and institutional support.
Loud calls for the demise of the paradigm might harm the acceptance and
pursuit of social and environmental goals. So, has sustainable development
run its course? Probably, in so far as it can give concrete policy advice.
Probably not, when considering the need to remind policy-makers of less
tangible goals of society, including ethical, cultural and aesthetic aspects of
the environment.
Want to know more?

One reason for the weak role of eco-development in implementing
sustainable development is the large variety of local conditions, cultures
and priorities, which have stymied the search for a general theory or
model. Fostering a local Agenda 21 by top-down (governmental)
prompting and support also has achieved little. A survey of local Agenda
21 initiatives by an international association of local governments
(United Nations Department of Economic and Social Affairs 2002)
showed that cash-strapped municipalities mostly boasted improved
water supply. In developing countries, bottom-up (grassroots) local
initiatives have frequently met with the resistance of central and regional
governments fearing the loss of power to local movements. Even where
local development efforts have succeeded, corporations and local elites
are known to plunder the fruits of development (Martinez-Alier 2002).
Germany’s sustainability report is available on the government’s
website (Federal Government 2008). Targeted indicators are to monitor
implementation, covering 21 social, economic and environmental themes.
As it happened, a coalition of non-governmental organizations produced
their own assessment of Germany’s sustainability at the same time (BUND

et al. 2008). Their report rejects the government’s objective of balancing
all dimensions of sustainability as ‘assimilation and domestication’
(BUND et al. 2008: 17; author’s translation) of sustainable development.
In their view, Germany needs a fundamental policy change, which uses
governmental authority ‘to push back the dominance of capital interests’
in favour of the ‘interests of nature and people’ (BUND et al. 2008: 607;
author’s translation).
A series of Earth Summits has kept alive the debate of environment
and development and their sustainability. The environmental movement
and its dire predictions triggered the first United Nations Conference on
the Human Environment (1972) in Stockholm. The Conference found
that both the lack of development (‘pollution of poverty’) and gain of
prosperity (‘pollution of affluence’) cause environmental problems. The
Conference called, therefore, for the environmental dimension to be
integrated into national and international development strategies. It also
established the United Nations Environment Programme to implement
and monitor an Action Plan for the Human Environment.
Responding to persistent policy failure on environment and
development (Chapter 9), the World Commission on Environment
and Development recommended that a UN Programme of Action on
Sustainable Development be set up, promoted by an international
conference (WCED 1987). In 1992, the United Nations Conference
on Environment and Development convened in Rio de Janeiro (United
Nations 1994). It adopted sustainable development and translated the
paradigm into an international action programme, Agenda 21, a Rio
Declaration and conventions, including the Framework Convention on
Climate Change (UNFCCC n.d.).
A progress review of the Rio Summit, Rio+5, found a lethargic
response to the Agenda 21 recommendations, reflected in the meagre
flows of promised financial aid (Osborn and Bigg 1998). The 2002
World Summit on Sustainable Development in Johannesburg (United
Nations 2003) did not break the lethargy, despite an attempt to include
civil society through ‘public–private partnership’ (United Nations
2003: 48). Progress and achievements of the forthcoming 2012 Rio+20
Earth Summit are discussed on the official website of the conference
(United Nations 2011b) and, more critically, by non-governmental

stakeholders (Stakeholder Forum on a Sustainable Future, n.d.).
In 2000 the Secretary-General of the United Nations launched the
Global Compact between international organizations, business and
civil society (United Nations 2011a). The Compact thus anticipated the
goal of public–private partnership proclaimed at the 2002 Johannesburg
Summit. The objective is to solicit support from corporations and civil
society for sustainability principles and the Millennium Development
Goals (Chapter 9). The ten principles of the Compact include standards
for human rights, labour, environmental protection and anti-corruption.
To date, over 8,700 corporations and stakeholder organizations in more
than 130 countries have signed up.

• Is sustainable development a fig leaf behind which governments
hide their real objectives of maximizing economic growth and
employment?
• Where is the best place for implementing sustainable development?
What can be done at local, national or international levels?
• Can local eco-development contribute to national sustainable
development?
• Should we curb the power of the World Trade Organization by, for
example, creating a countervailing World Environment Organization?
• What is the role of civil society in spurring sustainable development?
Should governments transfer some of their social and environmental
policies to (unelected) non-governmental organizations?
• Is sustainable development more than a wish list for social progress or
welfare? Can it provide a framework for attaining all societal goals?
• Are Earth Summits useful tools for promoting sustainable development?
What do you expect from the 2012 Summit? What are its results (if you
read this after the Summit)?
• Has sustainable development run its course?
11 Some conclusions
What is countable?
What counts? What should
we do about it?
• Micro- and macro-concepts of ecological, economic and development

sustainability
• Integrated environmental-economic accounts provide operational indi-
cators of sustainable economic growth
• Economic sustainability is a necessary but not sufficient condition for
sustaining economic growth
• Technology might save us from non-sustainability but is hard to predict
• Market instruments are efficient and less intrusive policy tools, but rules
and regulations can be more effective
• Non-countables of sustainable development count, but are prone to
political manipulation
• Coordination of sustainable economic growth with other concerns of
sustainable development has to be left to politics
• Sustainability economics defines benchmarks for sustaining the econ-
omy and the environment
Participants at an international meeting on business and sustainability

(Goodenough College, London, 12–13 June 2009) pronounced the con-
cept of sustainability redundant. Why focus on the status quo, they asked,
when the actual objective is to increase welfare? Moreover, available data
systems and models can handle the interaction of economy and environ-
ment without resorting to an obscure concept. These arguments may come
as no surprise in times of economic crisis when corporate social responsibil-
ity (Chapter 4) may have weakened. But then international organizations,
governments and environmentalists still adhere to sustainable development
(Chapters 9, 10).
For some overall conclusions let us return to the meaning and measur-
ability of sustainability, and find out what it can do for us and what we can
120 Some conclusions
do about it. The three parts of this book describe three different categories
of sustainability (Figure 11.1):
• ecological sustainability of the resilience of ecosystems and the carry-

ing capacity of territories (Chapter 3);
• economic sustainability of welfare or economic growth, accounting for
environmental damage or produced and natural capital consumption
(Chapter 6);
• sustainability of development, which seeks to meet the needs of society
now and in the future (Chapter 9).
We also found that ecological economics focuses on the physical base of

the environment–economy interaction. It tends, therefore, to downplay
economic sustainability and its monetary valuations; instead it suggests
standards and regulations for determining and implementing biophysi-
cal ecological sustainability. In contrast, environmental economics and
economic sustainability seek to integrate environmental impacts in mone-
tary economic analysis; environmental economics may, however, use some
of the standards of ecological sustainability for measuring and modelling
environmental damage and maintenance costs. Market instruments are the
preferred policy tool. Advocates of sustainable development do not usually
distinguish between economic and ecological sustainability; they would
probably subsume both categories under the economic and environmental
pillars of the paradigm.
All sustainability categories refer to micro (including local) and macro
levels of analysis. Table 11.1 shows the resilience of ecosystems to perturba-
tions as local-level ecological sustainability, whereas carrying capacity refers
usually to people and their activities in larger regions, countries or the planet.
Figure 11.1 Sustainability categories. (A) Ecological sustainability maintains eco-

systems and carrying capacities of nature. (B) Economic sustainability maintains
economic activity and its outputs, accounting for the cost of environmental depletion
and degradation. (C) Sustainable development seeks to meet the needs and aspira-
tions of the present and future generations.
Some conclusions 121
Table 11.1 Micro- and macro-concepts of sustainability
Sustainability categories Micro and local levels Macro level
Ecological sustainability Resilience of local Maintenance of carrying

ecosystems capacities of territories
Economic sustainability Non-declining utility, Non-declining welfare,
of well-being and allowing for disutility allowing for
welfare from environmental welfare losses from
damage environmental damage
Economic sustainability Produced and natural Produced and natural
of capital maintenance capital maintenance capital maintenance for
for sustaining the sustaining economic
productivity of growth
enterprises
Sustainable development Sustaining local Sustaining society now
communities through and in the future
bottom-up through top-down
eco-development policies
Economic sustainability sets out from micro-economic well-being (utility)

of individuals and defines non-declining macro-economic welfare as a
rather abstract sustainability concept. Alternatively, integrated economic-
environmental accounts define a more practical economic sustainability
concept as produced and natural capital maintenance. The purpose is to sustain
income and output of enterprises, economic sectors and the national economy.
Sustainable development encompasses all human needs and aspirations at
local, national and international levels.
So what is measurable? The hardly quantifiable notion of utility
disqualifies non-declining welfare as an operational measure of economic
sustainability (Chapters 5 and 6). The ecological concept of the carry-
ing capacity of a territory depends on the widely differing resiliences of
ecosystems and desirable living standards of a territory’s inhabitants. In
practice, ecological sustainability applies most usefully to the management
of local ecosystems, rather than larger regions (Chapter 3). Proxy measures
of national or global ecological sustainability, like the Ecological Footprint
and Total Material Requirement, suffer from questionable conversions of
environmental impacts into area and weight equivalents (Chapter 3). Finally,
the broad concept of sustainable development does not gain credibility by
aggregating large numbers of mostly incomparable economic, social and
environmental indicators (Chapter 9). For applied analysis and policy, this
leaves us with economic sustainability of capital maintenance for sustaining
economic output and consumption. Some international organizations seem
now to have reached similar conclusions, calling for a ‘green economy’
(UNEP 2011b) or ‘green economic growth’ (OECD 2011); however, they
still see the greening of economic activity as part of a broader strategy of
sustainable development.
To assess economic sustainability integrated environmental-economic
accounts use monetary values. Expanded market values reflect, at least in
principle, individual preferences for environmental and economic goods
and services. The accounts deduct the costs of produced and natural capital
consumption from the value of output and capital formation as measures of
net economic performance and sustainable economic growth (Chapter 6).
The first conclusion is that integrated environmental-economic
accounting is the only way to obtain operational measures of the sus-
tainability of both economy and environment. The accounts define and
measure the necessary conditions for sustaining economic performance and
growth as the maintenance of produced and natural capital.
One should not overlook, however, that environmentally adjusted eco-
nomic indicators ignore the maintenance of human, social and institutional
capital. For these less tangible types of capital we lack compatible account-
ing concepts and measures. Also, accounting for the total value of produced
and natural capital reflects weak sustainability, which assumes substi-
tutability of different production factors (Chapter 6). Strong ecological
sustainability calls for the preservation of non-substitutable critical natural
capital (Chapter 3); this is the objective of ecological economics. Whether
we can replace critical natural capital by reproducible production factors
depends on technological progress (Chapter 7).
The second conclusion is that economic sustainability will improve
but not necessarily ensure the overall sustainability of economic per-
formance and growth. Strong ecological sustainability reminds us that
economic activity could face potentially critical environmental constraints.
Technological progress might be the saviour but is difficult to predict.
Introducing physical environmental limits into economic analysis could
be the way to overcome the persistent dichotomy between ecological and
environmental economics and their strong and weak sustainability notions.
Introducing normative ecological standards into positivist economic
analysis may clarify the relationships between the two disciplines and could
reveal judgemental assumptions in modelling. Mixing norms with facts,
however, blurs the ‘scientific’ analysis of the environment–economy inter-
face (Chapters 8 and 10).
The third conclusion is that introducing ecological norms and stand-
ards into economic analysis can provide alternative policy scenarios
for optional environmental targets, but at the risk of manipulating the
sustainability picture by judgement and advocacy.
The next conclusion could be to discard all non-operational (non-
quantifiable) sustainability concepts, following the World Bank’s (2003b: 15)
Some conclusions 123
assertion that ‘people value what they measure’. This view belittles the
importance of intangible values such as knowledge, culture or altruism.
Selecting and targeting indicators for the wide range of rather generic sus-
tainable development goals may be judgemental, but makes the vision
of sustainable development more visible (Chapters 2 and 9). The ques-
tions remain: what does greater visibility reveal – in other words, what do
the indicators and their targets tell us about their significance in attaining
sustainability?
The fourth conclusion is that non-countables count, but we do not
know how much. All one can do is to signal their relevance – rather than
significance – by using indicators and their targets for measuring particular
target compliance or violation.
What should we do about it? The evaluation of sustainability by sets of
selected indicators and indicator averages is judgemental; so is enforcing
environmental targets and standards by rules and regulations. In contrast,
market valuation in environmental accounts gives us observable or at least
reproducible cost measures of attaining sustainability. One can use these
costs to change the environmentally damaging behaviour of households and
enterprises by means of market instruments. At the macro-economic level,
(re)investment policy can offset produced and natural capital loss in so far
as these capitals can be restored or substituted. Where these policies do not
work, either because of the loss of critical natural capital or delays and inef-
ficiencies in implementation, harder tools of command and control would
have to supplement market instruments (Chapter 7).
The fifth conclusion is that environmental-cost-based market instru-
ments and investments are less invasive and less judgemental tools of
attaining weak economic sustainability. Rules and regulations impose
the collective will when individual preferences are unable or unwilling to
account for critical environmental impacts.
The aggregation problem looms large in attempts at integrating socio-
economic and environmental policies of sustainable growth and develop-
ment. Combining all policies in one planning and budgeting framework is
bound to mislead when the contributions of different policies to a hazy goal
remain in the dark. Achieving cornucopian sustainable development is an
illusion, except perhaps for local eco-development (Chapter 10). We have
no unequivocal definition of sustainable development, nor a blueprint for its
implementation. Still, goodwill attached to the paradigm may help advocate
and drive acceptance of environmental and social policies. Priorities for and
coordination of the wide range of national and international development
policies have to be settled through political negotiation.
The sixth conclusion is: rational policies can tackle fact-based sustain-
able economic growth; coordination with other development concerns
has to be left to politics.
So, what can sustainability economics do for us? Obviously, it cannot
solve all environmental and economic problems, but it can tell us where
integrated environmental and economic policies:
• face uncertainty when lack of facts and figures blurs the assessment of
economic performance and environmental impacts (Chapters 2 and 3);
• become normative and judgemental when using ecological sustainabil-
ity standards and rules for securing nature’s life support (Chapter 4);
• turn opaque when drowned in cornucopian notions of human well-being,
quality of life or sustainable development (Chapters 5 and 9); and
• work best when quantifiable benchmarks of economic sustainability
indicate when and where produced and natural capital need to be
replaced (Chapters 6 and 7); the purpose is to avoid a decline of output,
income and consumption, in other words, to sustain economic growth.
All in all, we seem to know less than we believe, and to believe more than
we believe. Sustainability economics helps to pin down facts and figures as
opposed to convictions and advocacy in the charged debate of the sustain-
ability or non-sustainability of our economies. Introducing environmental
constraints into economic sustainability analysis shows the way towards a
common operational theory of sustainability economics (Chapter 8).
The seventh conclusion is: sustainability economics assesses the sus-
tainability of the economy and generates benchmarks for prudent
environmental and economic behaviour and policies. A practical frame-
work for integrative environmental and economic analysis and policy could
be its next achievement.

• Why should we be content with sustaining the environment and
economic performance when we could improve them?
• Market instruments versus command and control: what is more
important for attaining sustainability – efficiency or efficacy?
• What is measurable is manageable. What about intangibles such as aes-
thetic and ethical aspects of the environment? Should we leave them
to individual convictions and behaviour, or to the collective will of
governments?
• How do intangibles (non-countables) enter the sustainability equation?
What can economics do about it?
• ‘What’s economics got to do with it?’ we asked in Chapter 1. Can we be
more specific now, after exploring the three sustainability categories?
• Is sustainability economics a new discipline in its own right?
• What next? Look for unresolved and controversial issues and draw up
your own agenda for research and policy.
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Author index
Arrow, K. 83 Cortright, J. 84
Atkinson, G. 9 Costanza, R. 8, 19, 26, 57
AtKisson, A 69 Crook, C. 45
Auty, R.M. 83 Crowards, T.M. 44
Ayres, R.U. 9
Daly, H.E. 4, 8, 24, 26, 37, 40, 62, 82,
Barbier, E.B. 78 100, 107
Bartelmus, P. 5, 8, 14, 40, 64, 66, 67, Dasgupta, P. 82, 83
68, 70, 92, 94, 106 de Groot, R. 34, 35
Bebbington, J. 45 de Haan, M. 89
Beckerman, W. 8, 36, 101 Diamond, J. 13
Bhagwati, J, 107 Dixon, J.A. 74
Bigg, T. 117 Dorfman, R. 94
Bishop, R.C. 44 Dubner, S.J. xiii
Böhringer, C. 106 Dziegielewska, D. 59
Brand, F. 34, 35
Braungart, M. 45 Economist, The 73, 82, 107
Bringezu, S. 18, 19, 21, 40 Ehrenfeld 45
Brown, L.R. 13 Ehrlich, P.R. 4, 8
Brown, M.T. 22, 24 Ekins, P. 35, 105
BUND 117 Elliot, R. 44
Elliot, S. 84
Carson, R. 8 European Association for Bioeconomic
Castiglione, D. 71 Studies (E.A.B.S) 9
Center for International Earth Science European Commission see European
Information Network 102, 106 Union
Centre for Bhutan Studies 69 European Environment Agency 21
Chertow, M.R. 45 European Union (EU) 39, 40, 45, 69,
Ciriacy-Wantrup, S.V. 44 71, 84
Coastal Service Center, NOAA 26 Eurostat 18, 21
Cobb, C. 62, 63, 69 Ewing, B. 16, 17
Cole, H.S.D. 36
Commission of the European Faber, M. 44
Communities see European Union Factor 10 Club 40
Conrad, K. 82 Farley, J. 100
140 Author index
Faucheux, S. 100 Lawn, P. 8, 37, 108
Federal Government, Germany 110, Leipert, C. 62
111, 116 Leontief, W. 93
Frank, R.H. 41 Levitt, S.D. xiii
Funtowicz, S.O. 40, 82 Lomborg, B. 8
Lovelock, J. E. 8, 9
Gallup 69, 110
Georgescu-Roegen, N. 21 McDonough, W. 45
Gore, A. 8, 13 Mäler, K.-G. 83
Goulder, I.H. 77 Malthus, T. 8
Gray, R. 45 Mander, J. 107, 110, 113
Grossman, G.M. 78 Martinez-Alier, J. 116
Max-Neef, M. 62, 69, 98
Haeckel, E. 1 Meadows, D. 30, 35, 36, 38, 40
Hanley, N. 8, 101 Mederly, P. 102, 106
Hardin, G. 35 Meyer, B. 28, 29, 90
Hepburn, C. 60 Millennium Ecosystem Assessment 34
Hicks, J.R. xiii, 64 Munasinghe, M. 84
Hinterberger, F. 40 Murray, J. 93
Hoekstra, R. 93
Holdren, J.P. 4 Netherlands Environmental Assessment
Holling, C.S. 38 Agency 111
Hotelling, H. 83 Newsweek 84
Howell, S.L. 66 Nordhaus, W.D. 8, 36, 56, 61, 62, 66,
Huber, J. 45 76, 79, 80, 82, 84, 101
Norgaard, R.B. 9
Intergovernmental Panel on Climate Nováček, P. 102, 106
Change (IPCC) 15, 16, 57, 78
International Labour Organizations Odum, E.P. 34
(ILO) 98 Odum, H.T. 22
International Organization for Opschoor, H. 105
Standardization (ISO) 71 Organisation for Economic
IUCN (World Conservation Union) Co-operation and Development
40, 105 (OECD) 21, 39, 40, 75, 122
Islam, S.M.N. 80 Osborn, D. 117
Jevons, W.S. 42 Paterson, C. 35

Jochem, P.E.P. 106 Perrings, C. 25
Pezzey, J. 61
Kates, R.W. 115 Pigou, A.C. 51, 76
Kee, P. 89 Prescott-Allen, R. 102, 106
Kokkelenberg, E.C. 66
Koopmans, T.C. 80 Ravetz, J.R. 40, 82
Klitgaard, K. 101 Rennings, K. 44, 105
Krall, L. 101 Rodrik, D. 107
Krueger, A.B. 78 Røpke, I. 9, 14
Kuznets, S. 78
Sachs, W. 7, 41
Landefeld, J.S. 66 Sachs, I. 109
Lange, G.-M. 82 Samuelson, P.A. 82, 101
Author index 141
Segal, J.M. 41 Environment Programme (UNEP)
Simon, J.L. 8 39, 84, 109, 122; Procurement
Simonis, U. 113 Division 45; Statistics Division
Slesser, M. 19 (UNSD) 15
Söderbaum, P. 8, 100 U.S. Department of the Interior 38
Solow, R.M. 83 U.S. National Weather Service 20
Speth, J.G. 106
Stahmer, C. 88 van den Bergh, J.C.J.M. 93
Stakeholder Forum for a Sustainable van der Straaten, J. 105
Future 118 Veblen, T. 41
Stern, N. 55, 56, 79 von Carlowitz, H.C. 105
Steurer, A. 21 von Weizsäcker, E.U. 28, 42
Stiglitz, J.E. 69
Sustainable Europe Research Institute Wall, G. 21
(SERI) 21 Weitzman, M.L. 79, 80
Svendsen, G.L. 71 Welfens, P. 55
Svendsen, G.T. 71 White, L. 9
Szargut, J. 21 Wilde, O. 49
Wood, R. 93
Talberth, J. 62, 69 World Bank 29, 71, 84, 122
Tietenberg, T. 8, 83, 101 World Business Council for Sustainable
Time 84 Development (WBCSD) 41
Tobin, J. 61, 62 World Commission on Environment
Tolba, M.K. 21 and Development (WCED) 99,
Turner, R.K. 8, 35, 101 100, 117
World Conservation Union see IUCN
Ulgiati, S. 22, 24 World Trade Organization (WTO) 106
United Nations 21, 31, 38, 44, 45, 66, World Wide Fund for Nature (WWF)
75, 84, 99, 105, 111, 118; Conference 30, 38
on the Human Environment 117;
Department of Economic and Yale Center for Environmental Law
Social Affairs 116; Development and Policy 102, 106
Programme (UNDP) 28, 99, 106;
Educational Scientific and Cultural Zero Emission Research Initiative
Organization (UNESCO) 100; (ZERI) 45
Subject index
activity analysis see linear command and control see rules and
programming regulations
adaptive management 38 commodification of nature 24; see also
Africa 17, 66, 68, 99 nature, value
Agenda 21 112, 117; local 109, 116 comparative advantage 103
anthropocentric view of the computable general equilibrium 75,
environment 2, 86 82–3, 90–1
Asia 17 conspicuous consumption see
Australia 15 overconsumption
consumer surplus 53, 59
basic human needs see human needs, corporate environmental accounting
basic 64–5, 69, 71
Bhutan 69 corporate social responsibility 41, 42,
biocapacity 16–18, 23, 30 45
bioeconomics 9 cost–benefit analysis 8, 52, 74
biomimicry 45 cradle-to-cradle design 45
Botswana 82 critical natural capital 26, 34–5, 102
capital 26, 64; consumption 63–4, 65, decoupling of environmental impact

66; maintenance 65, 69, 80, 121; from economic growth 39, 40
natural see natural capital; produced deep ecologists 2, 5, 6, 13
65, 66; widening 62 defensive expenditure 62
capitalism 102, 113, 117 deglobalization 113, 114 see also
carbon: price 56, 76; tax 56, 76, 90 localization
carrying capacity 4, 25, 30, 105, 109, delinking see decoupling
120 dematerialization 39, 40, 84, 90
China 15, 17, 66, 68 demographic growth 4, 8, 35
civil society 52, 117, 118 demographic policy 38, 49
climate change 8, 13, 14–16, 111; cost developing countries 81, 98
55–7, 76, 78; discounting 55, 79; development 97–8, 100, 123 see also
Framework Convention 117; sustainable development; indices
policy 76, 79, 90 105–6; local see eco-development
co-evolutionary economics 9, 100 Development Decades see International
Development Strategies
144 Subject index
digital revolution see information and emergy 21–2
communication technology Emission Trading System 76
discounting 54–5, 60, 79, 80, 91; social energy: accounts 19, 21; conservation
54–5, 60, 79, 83 18, 21; global balance 19–20; theory
discovery see natural resource, of value 19, 24
discovery environment 1–2
Doha negotiations 106, 114 environmental accounts see System
double dividend 77 for integrated Environmental and
Economic Accounting and corporate
earth: Charter 44; summits 111–12, environmental accounting
117–18 environmental assets see natural capital
eco-centric view of the environment environmental cost 40, 63, 65, 66, 71
2, 86 see also social cost; internalization 8,
eco-development 109–10, 116 74–5; marginal 40, 58–9, 76, 77
eco-efficiency 40, 42 environmental degradation 14, 68, 71
eco-tax 76, 77, 90 see also carbon, tax environmental disaster 4, 8, 13–14,
eco-techniques 109, 110 28, 30, 35–6, 55
eco-nomics 5, 6, 8; history 6–7, 125 environmental economics 5, 6, 7, 8,
ecological deficit/credit 16–17, 18 50, 74–5 see also environmental-
ecological economics 5, 6, 8, 14, economic polarization
24, 43–4, 100, 101 see also environmental education 75, 109
environmental-economic polarization environmental ethics 41, 44, 54
Ecological Footprint 16–18, 23, 30–1 environmental externalities 50–1, 52,
ecological management rules 37–8 58; internalization see environmental
ecological sustainability see cost, internalization
sustainability, ecological environmental functions see ecosystem,
ecological tax reform 76–7 services
ecology 1, 6, 9 environmental impact 4, 69, 82 see also
economic agents 2, 70; environmental environmental pressure
effects 50–1 environmental indicators 14, 15, 21
economic growth 62, 63, 97, 98, environmental Kuznets curve 78, 79
103, 104 see also decoupling and environmental limits 4, 40, 49, 91–2, 94
environmental Kuznets curve; Environmental Management and Audit
green 122; limits 4, 80; models 91; Scheme 71
sustainable 66, 68, 78–9, 80, 83–4, environmental policy 40, 41, 78;
122, 123 instruments 75–6
economic indicators 70, 88; greening environmental pressure 6, 16, 21
65, 70, 122 environmental protection 74 see also
economic sustainability see defensive expenditure
sustainability, economic environmental services see ecosystem,
economic value see valuation, services
economic environmental standards 32, 33–4, 59,
economics: institutional 101; laissez- 101, 122 see also safe minimum
faire 9, 78; mainstream 4, 6, 101 standards and environmental limits
economy 2, 3; black-box 3, 14, 19, 87; environmental sustainability see
green see green economy; new 84 sustainability, environmental
ecosystem 34; accounts 71; equilibrium Environmental Sustainability Index
25, 34; management 38; resilience 102, 106
25, 34, 44; services 2–3, 25, 34, 57, environmental targets see
58–9 environmental standards
Subject index 145
environmental-economic polarization happiness 69
6, 7, 26–7, 49–50, 86–7, 113, 120 hidden material flows 18
environmental-economic reconciliation homo oeconomicus 44
87, 91–3, 100, 122 Hotelling rule 83
environmentally adjusted net capital human capital 64, 66, 71
formation (ECF) 65, 66, 68, 70 Human Development Index 28, 98–9, 106
environmentally adjusted net domestic human needs 25, 98, 100, 121; basic
product (EDP) 65, 66, 70 38, 91, 98
equilibrium: economic 8, 58, 75 see hybrid accounts 87, 88–9
also computable general equilibrium; hybrid models 90
temperature 20
equity: inter-generational 44, 100 income 2, 64; distribution 70, 78, 100;
see also discounting, social; maximization 5, 78; national 70;
international 100; intra-generational sustainability 64
44, 100 Indicator of Sustainable Economic
Europe 99, 103 Welfare 62
European Union 18, 19, 40, 71, 76, 84, industrial ecology 9
97 industrialized countries 18, 39, 66, 113
exergy 19, 21 information and communication
externalities see environmental technology 84, 107
externalities input–output model 28, 29, 81, 90, 93
input–output table 81, 87, 89, 93;
factors of natural resource productivity physical 88
28, 39, 40, 42 integration see policy integration
feasibility space 91, 92 interaction of environment and
fiscal (dis)incentives see market, economy 2–4, 24, 64
instruments inter-generational equity see equity,
full world 4, 5 inter-generational
International Development Strategies
Gaia hypothesis 8, 9, 13 99, 104–5, 114
general equilibrium see equilibrium, invisible hand see market
economic IPAT equation 4
Genuine Progress Indicator (GPI) 62–3 irreversibility of environmental impacts
Germany 15, 28, 29, 66, 67, 76–7, 88, 26, 44
110–11, 116–17 ISO 14000 71
Global Compact 114, 115, 118
global governance 111–13 Japan 18
global warming see climate change
globalization 103–4, 106–7, 113; Latin America 17
sustainability effects 102–4, 107, 113 limits to growth report 8, 28, 30, 35–6, 38
good life 41, 102 linear programming 91–2, 93–4
green accounting see System for Living Planet Index 38
integrated Environmental and lobbying 52, 66, 74
Economic Accounting localization 113
green economy 38, 84, 121
greenhouse gases 19, 20 maintenance cost 63, 65, 120
gross domestic product (GDP) 61, 62, market 6, 40, 73, 83; failure 40, 51–2,
66, 70; bashing 63, 69; green 65; 58, 73, 82; instruments 75–6, 123;
physical 88 price 50, 53, 58–9 see also valuation,
Gross National Happiness 69 economic
146 Subject index
material flow accounts 18–19, 20, 21, Pareto optimality 58
27–8 Philippines 74
maximum sustainable yield 26, 35 polarization see environmental-
metabolic consistency 42, 45 economic polarization
micro–macro analysis 6, 120–1 policy integration 44, 99, 108
Millennium Development Goals 31–2, polluter-pays-principle 75
105, 114 population growth see demographic
modelling 28–31, 80, 90–1; climate growth
change 56–7 poverty 58, 84, 111, 117
multi-lateral environmental agreements precautionary principle 38
114 pressure-state-response framework 21
producer surplus 60
Namibia 82 public goods/bads 51–2, 73
National Accounting Matrix including public–private partnership 45, 111, 117,
Environmental Accounts 88–9 118
national accounts see System of
National Accounts quality of life 25, 69
natural capital 63, 64, 83 see also
critical natural capital; consumption rebound effects 42
63–4, 65, 70; value 54, 60 residuals 18, 88
natural disaster see environmental resource economics see natural
disaster resource, economics
natural growth 35 resource curse see natural resource, curse
natural resource: curse 81, 83; resource productivity see natural
depletion 35, 63, 70 see also tragedy resource, productivity
of the commons; discovery 26; Rio: Declaration 44; +20 see earth,
economics 83; productivity 28, 40, summits
42; rent 60, 83; rent capture 81, 82 rules and regulations 43, 44, 75, 123
natural resources 2, 3, 20; common
property see natural resources, safe minimum standards 25, 38, 44, 105
open-access; exhaustible 26, 77, 83; scarcity 50, 52, 58
non-renewable see natural resources, Simon–Ehrlich wager 8
exhaustible; open-access 35; social capital 64, 66, 71
renewable 26 social cost 76, 77, 103
nature 2–3, 45, 108–9; services see social justice see equity
ecosystem, services; value 24, 44, source and sink functions see
49, 50, 53–4 ecosystem, services
net domestic product 70; green see South Africa 15
environmentally adjusted net Southern Africa 81
domestic product substitution see sustainability, strong/
Netherlands 110, 111 weak
new growth theory see economy, new sufficiency 40, 41
non-governmental organizations sustainability 69, 87, 119, 120–1;
110–11, 113, 116–17 ecological 25, 30–1; economic 61,
non-sustainability 14, 23, 28 65, 121, 122; environmental 7, 31–2,
North America 99 65; financial 1; maximum 14, 35;
nuclear accident 55; social cost 79 strong/weak 26–7, 65–6, 68, 101–2
sustainability economics 4–5, 8, 115–
Oceania 17, 99 16, 124
optimal extraction 77, 83 sustainability indicators 14, 19, 21, 30,
overconsumption 41, 50–1 32, 121–2
Subject index 147
sustainability models 33, 78–9, 80, uncertainty 38, 44, 54, 79, 124
83–4, 91–2 United Arab Emirates 17
sustainability policy 38–40, 110–11, United Kingdom 18, 42
123 sustainability science 115 United Nations: Commission on
sustainability targets 28, 31–2, 33–4, Sustainable Development 112;
122 Environment Programme 39, 109,
sustainable development 97–101, 112–13
105, 115, 116; conferences see USA 15, 17, 62, 66, 69, 110
earth, summits; definition 100; utility 4, 58; maximization 24, 80, 82;
dimensions 99–100; indicators measurement 52, 57, 121
21, 102, 103; indices 102, 106;
pillars see sustainable development, vacuum economics 82
dimensions; policies 108, 110–11, valuation: cost–benefit 52–3; economic
117, 123 52–4, 60, 123; energy 19, 22, 24;
Sweden 18 human bias 14, 24, 49, 50
System for integrated Environmental
and Economic Accounting (SEEA) well-being see utility and welfare
63–4, 68–9, 122; case studies 66–8; Well-Being Index 102, 106
indicators 65, 66–8, 70; revision 66, welfare 4, 53, 100; function 83;
70–1; valuations 68, 70 maximization 5, 58, 83, 100;
System of National Accounts (SNA) measure 28, 30, 61–3, 69;
63, 69–70, 80 sustainable 61, 62, 91 see also
sustainability, economic
technology 28, 42, 80, 81, 84 see also willingness to pay 52, 53, 58, 59
information and communications World Commission on Environment
technology and development 99, 100, 117
threshold hypothesis 62 World Conservation Strategy 105
throughput 40 World Environment Organization 113
total economic value 53–4, 59 World Trade Organization (WTO) 97,
Total Material Requirement 18, 88 102, 106; greening 113–14
trade liberalization 103, 104, 106
tragedy of the commons 26, 35
Appendix: Historical
perspective of eco-nomics
Period Ecology, Ecological (Neo-)classical Environmental Sustainable
thermodyna- economics economics economics development
mics
V. Carlowitz
(1713)
1750
Quesnay
(1759)
Smith
(1776)
1800
Malthus Ricardo
Carnot (1798) (1817)
(1824)
Clausius
(1850)
1850 Darwin Mill

(1859) Marshall
Fisher Jevons
Haeckel Walras (1865)
(1866) (1840–
1910)
1900 Pigou
(1920)
Lotka
(1925) Hotelling
Keynes (1931)
1950 Odum & (1936)
Odum Kapp
(1953) Georgescu-R. (1950)
(1971)
H.T. Odum
(1996) Boulding Coase IUCN
Mishan WCED
Ayres United
2000 Human/deep
Daly Main- (Solow)
ecology stream Hartwick Nations
Martinez- (1980–
Alier econo- Pearce
Costanza mics Mäler
... ... Institutional,
Bio-
coevolutionary
economics
(1960– economics
(1960–
Source: Bartelmus (2008: Plate 2.1), with kind permission from Springer Science+Business
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This book is a concise introduction to an emerging field within economics.

Peter Bartelmus is a Professor at the University of Wuppertal, Germany.

1 The Economics of Agricultural Development, Second Edition

4 Agribusiness Management, Fourth Edition

ISBN: 978-0-415-68682-2 (hbk)

Typeset in Times New Roman

2 How much nature do we have? 13

5 What is the value of nature? 49

A syllabus for a short course, including powerpoint

1.1 Anthropocentric and eco-centric view of the

1.1 Schools of eco-nomic thought 6

The apparent rationality of economics has lured scholars into applying

I wrote this book as a resident scholar at Columbia University; access to

• Environment is all the living and non-living things around us

‘It’ refers to the environment as a key concern of sustaining economic activity

Here I is environmental impact, P is population size, A = GDP/P is affluence

The emphasis is on efficiency, as it is mostly ignored in advocating sustain-

Conventional Environmental Ecological Deep ecology

- Maximization - Maximization - Reduced, zero or - Negative growth

• environmental economists cost and budget environmental deterioration

This book addresses the sustainability of economic performance and

A. Environmental economics: how much for B. Ecological economics: how much

and the extension of mainstream economics into the use of environmental

Want to know more?

Other schools of eco-nomics. Focusing on the polarization of

Points for discussion

• Environmental indicators warn us about environmental degradation and

• The world is in an ‘“overshoot-and-collapse” mode’ (Brown 2006: 5).

• 1.4 –5.8°C of global warming by the year 2100;

Looking at the underlying statistics reveals problems of data availability

Australia China Germany South USA

Source: United Nations Statistics Division (2010).

poverty (Figure 2.1)? Even if we accept average temperature increase as

©IPCC 2007: WG1-AR4

Ozone layer depletion Ozone layer depletion

Ecological Footprint per person (ha)

Country Rank Score Deficit/credit

United Arab Emirates 152 10.7 –9.8

Source: Ewing et al. (2010).

Biotic raw Water

Total material Total material

Energy accounts could be an alternative to material flow accounts. This

Want to know more?

Points for discussion

Chapter 2 examined indicators and physical accounts which claim to

in definitions and measures of the sustainability of human needs and

• natural renewal of regrowing biological resources and replenishment

The distinction of renewable and non-renewable resources is ambiguous,

(Chapter 6). The strength of sustainability is a distinctive and distinguishing

Human Welfare and Footprint

Human Welfare index

Human ecological footprint

1900 2000 2100

The Ecological Footprint aims to show the average per-capita territorial

‘our present track is unsustainable’, but changing the assumptions about

Target 7A: Reverse the loss of environmental resources

Source: United Nations (2010b).

Measure/model Results Limits/targets Assumptions

- Maximization - Maximization - Reduced, zero or - Negative growth